Question: I have car insurance on my one car, but I dropped it on a car that I was selling. The person I was selling it to wrecked the car, and now I'm getting my license suspended because the car is still in my name. Is there anything that I can do to keep from losing my license?
Answer: If you had already sold the car to the person driving, then there may be steps you can take to keep your license from being suspended. If you actually hadn’t yet sold the car to the other party, then it’s doubtful that you can keep your driver’s license from being suspended.
To keep yourself from being penalized for no car insurance don't drop your car's policy until it's sold and even then first check with your Department of Motor Vehicles (DMV) to see if the person has placed the car in their name, so they won't show you having a lapse in coverage.
If the person was test-driving your car, and just a potential buyer, then it’s your responsibility to keep car insurance on the vehicle. In general, most states require that a car owner keeps insurance on a vehicle that is registered and can penalize you if you don't, especially if it's in an accident.
Even if you aren’t using a car that you have up for sale, you need to keep car insurance (and registration) valid on it so that anyone interested in purchasing the car can test-drive it. If you want to take insurance off of a car, then you would need to turn in your registration and plates and not have anyone at any time drive the car, or else you can face penalties for allowing your uninsured car to be driven.
You may have assumed that if the person test-driving the car had insurance it would be fine. This is incorrect. Car insurance follows a car, so this means it was your responsibility, as the car owner, to carry insurance on it while it’s still in your name. (See "Totaled on a test drive: Who pays?").
If you allowed the person to take the car for a test drive and it was without insurance, you will have to face the penalties your state hands out for this, such a license suspension. And you may also be found liable to pay, along with the driver, for damages he caused others in the accident due to the vicarious liability you have as the owner of the car.
Now, if you'd already sold the car, then you may have an argument that will keep you from getting your license suspended.
Sometimes car buyers don’t change over the title in a timely manner, and that is why the DMV normally advises you to contact them after selling a car and fill out a notice of transfer that will release you from future liability on the vehicle. For instance, if you live in California, you can download the form on their DMV site.
If you did notification, then get a copy of the form to see if providing that along with a copy of the bill of sale to the DMV, showing that the car was sold before the person was in the accident, will convince the state to drop the penalties against you. If they don't, then you may want to seek legal advice on what other options you may have to keep your license valid.