What Creditors Need to Know About the Bankruptcy Automatic Stay

When a bankruptcy case is filed, it immediately changes how and if you can recover the money you’re owed. 

If you're a creditor in New York, you’ve likely felt the frustration of seeing your collections stalled or a lawsuit frozen by something called the “automatic stay.” It can feel like everything you've been working toward just got locked behind a legal wall.

Whether you’re a landlord with unpaid rent, a lender facing a halted foreclosure, or a business owner trying to enforce a judgment, the automatic stay can complicate your next move. And while it’s designed to give debtors a break, it can leave creditors overwhelmed, out of options, and unsure what’s legal anymore.

Our commercial litigation attorneys at Horn Wright, LLP, help creditors across New York respond quickly and lawfully when a bankruptcy filing interrupts their recovery efforts. We know what’s at stake and we’re here to protect what you’ve worked hard to secure.

What Just Happened? The Automatic Stay Shuts Down Your Collection Rights

The automatic stay goes into effect the moment a bankruptcy petition is filed. It’s a federal protection outlined in 11 U.S.C. Section 362(a), and it pauses almost every form of creditor activity.

Once active, you can’t:

• Foreclose on real property. Under Civil Practice & Law Rules Article 13, foreclosure proceedings must stop immediately.
• Evict a tenant unless you’ve already regained legal possession. Real Property Actions and Proceeding Law Section 711 outlines the eviction process, but bankruptcy halts it mid-stream.
• Disconnect utilities. Under 11 Utility Service Code Section 366, utility providers must continue service for at least 20 days after bankruptcy is filed.
• Repossess assets or enforce judgments, including levies, garnishments, or bank freezes.

Even administrative consequences, like driver’s license suspensions under Vehicle & Traffic Law Section 510, can’t proceed once the stay is in place.

What Can You Still Legally Do?

Although broad, the automatic stay doesn’t block every action. There are clear legal exceptions that allow creditors to move forward in certain cases.

Here’s what may still be allowed:

• Criminal proceedings: You’re not barred from pursuing fraud, theft, or check-kiting allegations. But the law excludes criminal cases from the stay.
• Evictions if you already obtained a judgment of possession before the filing. The law allows for some landlord actions to continue, as long as you’re not trying to recover money.
• Mechanic’s liens: You can still file one under Lien Law Section 10 to preserve your right to payment. Enforcement has to wait, but the filing itself is time-sensitive and protected.
• Tax audits and notices: The IRS can audit or send notices, but they can’t collect without permission.

If you think your situation might fall under one of these categories, you’ll want to evaluate it carefully. The court can still issue sanctions if you act outside the boundaries of the law.

How to Legally Regain Collection Rights

If the stay is hurting your position or affecting secured property, you can ask the court to lift it by filing a motion for relief. This is your opportunity to show the court why collection should continue despite the bankruptcy.

The court may grant relief when:

• You’re not receiving adequate protection for your secured assets, such as regular payments or insurance.
• The debtor has no equity in the asset and it’s not necessary for their reorganization.
• Delays are putting your finances or property at risk.
• The bankruptcy was filed in bad faith, such as multiple filings to block foreclosure or eviction.

This process is especially relevant for creditors involved in commercial lawsuit representation or breach of contract claims where legal and financial timelines matter. 

Relief isn’t automatic. You’ll need strong documentation and proper service.

If You Violate the Stay, Here's What You're Risking

The penalties for violating the automatic stay are serious. Under 11 U.S.C. Section 362(k), a creditor may be required to:

• Undo any actions taken after the stay began.
• Cover the debtor’s legal costs.
• Pay actual damages for harm caused by the violation.
• Face punitive damages if the violation was willful or egregious.

These consequences are especially damaging if you're already navigating a broader dispute involving a partnership dispute attorney or working with a corporate litigation firm. 

Mistakes here can cost more than just time. They can damage your credibility in other parts of the case.

Work with a New York Firm That Understands How to Protect Your Interests

Our commercial litigation lawyers at Horn Wright, LLP, help creditors take smart, fast, and lawful steps when bankruptcy affects their financial recovery.

Whether you're enforcing creditor rights or recovering assets, our team helps you protect your interests at every stage.

If you’re ready to move forward with precision and strategy, it’s time to hire one of the best law firms in America. We’re here to help you do it right and quickly.

Schedule your FREE initial consultation online or call us at (855) 465-4622 today.