When Can Creditors Ignore the Automatic Stay in a New York Bankruptcy Case?

When you file for bankruptcy in New York, one of the most important protections you receive is the automatic stay under 11 U.S.C. § 362. It acts like a legal shield—stopping creditors from calling, suing, garnishing wages, or taking your property.

But are there situations when a creditor in New York can legally proceed despite the stay?

The answer is yes, but only in limited, clearly defined exceptions. Below, we explore the most common scenarios where the automatic stay does not apply in New York bankruptcy courts, especially in the Southern and Eastern Districts.

🔹 What Is the Automatic Stay?

The automatic stay goes into effect immediately when you file for Chapter 7 or Chapter 13 in New York. It stops:

  • Lawsuits and judgments

  • Wage garnishments

  • Foreclosures and evictions

  • Repossessions

  • Harassing creditor contact

💡 Visit our Automatic Stay page to learn how this protection works in New York bankruptcy cases.

🚫 When the Automatic Stay Doesn’t Apply in New York

Let’s break down the key exceptions that arise in practice:

✅ 1. No Stay for Repeat Filers With Multiple Dismissals

If you’ve had two or more bankruptcy cases dismissed within the last 12 months, no automatic stay goes into effect unless the bankruptcy court imposes one.

📍 Southern District of New York (SDNY) follows 11 U.S.C. § 362(c)(4). Debtors must file a motion to impose the stay within 30 days or creditors can legally proceed.

📘 In re Washington (2025 U.S. Dist. LEXIS 92469) involved a foreclosure that was allowed to move forward the same day the case was filed, because the debtor had two prior dismissals.

✅ 2. Government Enforcement Actions

Under § 362(b)(4), government agencies (like NYS Department of Taxation or NYC Environmental Protection) can proceed with actions enforcing public laws—such as environmental violations, fraud, or regulatory compliance.

📘 New York v. Exxon Corp., 932 F.2d 1020: The Second Circuit held that the City of New York could sue Exxon for hazardous waste cleanup costs despite Exxon’s bankruptcy, because it was enforcing regulatory powers.

📘 SEC v. Miller, 808 F.3d 623: A freeze order by the SEC was allowed even after the debtor filed Chapter 11.

✅ 3. Lawsuits Against Non-Debtor Entities

The automatic stay only applies to the debtor, not co-defendants or related companies.

📘 In Mokuba N.Y. LLC v. Pitts, 2009 Bankr. LEXIS 4023 (SDNY), a lawsuit continued against corporate co-defendants despite the debtor’s bankruptcy. The court found that unless the third-party litigation affects the bankruptcy estate, it can proceed.

🧠 In New York, extending the stay to non-debtors is rare and requires a motion under 11 U.S.C. § 105.

✅ 4. Commercial Lease Terminated Pre-Filing

If a non-residential lease (e.g. a storefront or office) was lawfully terminated before filing, New York landlords can proceed with eviction even after a bankruptcy is filed.

This exception is recognized under § 362(b)(10).

✅ 5. Technical Violations Without Willfulness

Creditors in New York sometimes violate the stay unintentionally—such as sending a notice or proceeding in court without knowledge of the case. These technical violations may be void but don’t always result in damages.

📘 In In re Morway, 2002 Bankr. LEXIS 2065, the court ruled that a hearing held after filing was technically void, but not sanctionable because it wasn’t willful and the debtor wasn’t harmed.

⚠️ When New York Creditors Must Obey the Stay

If a creditor in New York knows about your bankruptcy and continues collection efforts anyway, the violation is willful and can result in:

  • Actual damages

  • Attorney’s fees

  • Punitive damages (if egregious)

📘 In re Watt, 2014 Bankr. LEXIS 5272 (11th Cir.): The creditor refused to return a vehicle and was ordered to pay both actual and punitive damages.

🧾 Summary: When Can New York Creditors Ignore the Stay?

Situation Is the Stay Enforced in NY?
2+ dismissed cases in past year ❌ No stay unless court imposes
Government enforcement action ❌ Not subject to stay
Action against co-defendant or affiliate ❌ Not covered by stay
Expired commercial lease ❌ Not protected
Technical violation with no knowledge ⚠️ Void but not sanctionable
Willful collection after notice ✅ Damages and sanctions apply

📍 Filing Bankruptcy in New York? Know Your Rights

At The Law Office of William Waldner, we help clients across Manhattan, the Bronx, Brooklyn, and White Plains stop collections and enforce their rights under the automatic stay. We also help creditors understand when they can and cannot take action.

📞 Schedule a free consultation today at
👉 www.midtownbankruptcy.com/contact
or call (212) 244-2882.

Share