Every creditor who has watched a debtor file bankruptcy has felt the temptation: the debtor is untouchable behind the automatic stay, but the spouse never filed. Why not keep the lawsuit going against her? In June 2026, the Ninth Circuit Bankruptcy Appellate Panel answered that question the expensive way in In re Pearlman, holding that a judgment creditor who kept prosecuting a fraudulent transfer suit against the debtor’s non-filing wife violated the automatic stay of 11 U.S.C. § 362 and owed the debtor’s attorneys’ fees as damages. The decision comes from another circuit, but the reasoning runs on statutory text and widely followed precedent, and it maps cleanly onto how these disputes play out in New Mexico’s bankruptcy court. If you hold a judgment and the debtor just filed, this is the case to understand before your next docket entry.
What happened in Pearlman?
The creditor won a New York judgment against the debtor on a guaranty, then sued both the debtor and his wife in two states, alleging the debtor had used a premarital agreement to move community property beyond creditors’ reach. The debtor filed Chapter 7 while both suits were pending; his wife filed nothing. Two weeks after receiving notice of the bankruptcy, the creditor asked the New York court for leave to serve the wife by alternative means, citing a looming limitations deadline, and said nothing to that court about the bankruptcy. Service was made. The debtor moved for contempt in the bankruptcy court, which found a willful stay violation and awarded $5,880 in fees. The B.A.P. affirmed on every point.
Why does suing a non-debtor violate the debtor’s stay?
Two independent provisions did the work. Section 362(a)(1) stays the continuation of any action against the debtor that arose before the petition, and the panel, following its earlier decision in In re Koeberer, 632 B.R. 680 (B.A.P. 9th Cir. 2021), held that a fraudulent transfer action against the recipient of the debtor’s assets is, in substance, an effort to collect the claim against the debtor. The caption says the wife’s name; the economics say the debtor’s debt. Section 362(a)(3) supplies the second, more structural problem: once the petition is filed, fraudulent transfer claims belong to the bankruptcy estate, to be pursued by the trustee for all creditors, not raced to judgment by whichever creditor found the courthouse first. Continuing the suit was an attempt to exercise control over estate property. Either theory alone was a violation. The creditor managed both at once.
What does “the claims belong to the estate” actually mean?
This is the piece most non-bankruptcy lawyers miss. Under 11 U.S.C. §§ 544 and 548, the trustee inherits and controls avoidance claims, including state law fraudulent transfer theories that any creditor could have brought before filing. In New Mexico that means claims under the Uniform Voidable Transactions Act, NMSA 1978, §§ 56-10-14 to -25, pass to the trustee the moment the petition hits the docket of the United States Bankruptcy Court for the District of New Mexico. A creditor who liked its fraudulent transfer suit does not lose the value of those claims; recoveries flow into the estate and out through distributions. What the creditor loses is the steering wheel. The remedy for a creditor who wants those claims pursued aggressively is to engage with the trustee, or seek derivative standing, not to keep litigating solo and hope nobody notices.
How expensive is a stay violation, really?
Section 362(k) makes an individual debtor’s recovery of actual damages for a willful violation mandatory, and Pearlman reaffirmed that attorneys’ fees are actual damages all by themselves, no other injury required. Willful does not mean malicious; it means you knew about the bankruptcy and intended the act that violated the stay. Good-faith reliance on your own reading of § 362 is not a defense, which is the precise mistake the Pearlman creditor made when he decided the stay did not cover his motion. Punitive damages are available in appropriate circumstances on top. The safe harbor is always the same and always cheap by comparison: file a motion for relief from stay and let the bankruptcy judge draw the line.
| Creditor’s move after the debtor files | Stay problem? | The safer route |
|---|---|---|
| Continue suit against debtor | Direct violation, § 362(a)(1) | File proof of claim; seek stay relief if cause exists |
| Continue fraudulent transfer suit against transferee | Violation per Pearlman and Koeberer, §§ 362(a)(1), (a)(3) | Refer the claims to the trustee, or seek derivative standing |
| Sue a co-guarantor on their own guaranty | Generally permitted; the co-obligor’s own debt is not stayed | Confirm the theory targets the co-obligor’s liability, not the debtor’s assets |
| Serve papers “just to beat the statute of limitations” | Still a violation | 11 U.S.C. § 108(c) extends most nonbankruptcy deadlines; check before acting |
What should New Mexico debtors take from this?
The stay is broader than most people, including some lawyers, assume, and it has teeth. The moment a Chapter 7 or Chapter 13 petition is filed, collection pressure aimed at your assets has to stop even when it arrives dressed as litigation against someone else. If a creditor keeps pushing, against you, or against a spouse or family member as a way of reaching property you transferred, the bankruptcy court can order the conduct stopped and make the creditor pay your fees for the privilege. Debtors should not shrug off these maneuvers as someone else’s problem. Document them and raise them; the statute was built to make enforcement affordable.
Is an out-of-circuit ruling binding in New Mexico?
No, and honesty about that matters. New Mexico sits in the Tenth Circuit, and a Ninth Circuit B.A.P. decision binds no court here. But Pearlman is persuasive authority built from the statute’s plain text and a line of cases that Tenth Circuit courts already cite in adjacent contexts, and nothing in Tenth Circuit law points the other way on the core holdings. A New Mexico creditor betting that our bankruptcy judges would bless conduct the Ninth Circuit B.A.P. just called a textbook violation is making a wager with someone else’s attorneys’ fees attached.
Frequently Asked Questions
My spouse filed bankruptcy but I didn’t. Can creditors still sue me?
On your own debts, generally yes. What Pearlman forbids is using a suit against you as a vehicle to collect your spouse’s debt or to grab assets that now belong to your spouse’s bankruptcy estate, such as property they transferred to you. The line is drawn by whose liability and whose property is really in play. In Chapter 13 cases there is also a statutory co-debtor stay protecting co-signers on consumer debts.
Does the automatic stay protect my LLC if I file personally?
Not directly; a company you own is a separate legal person. But actions aimed at your ownership interest, which is property of your estate, can implicate the stay, and the analysis gets fact-specific fast. Get advice before assuming either way.
I’m a creditor and the limitations period on my claim is about to run. Am I stuck?
Usually not. Section 108(c) extends most nonbankruptcy deadlines against the debtor while the stay is in place, and proofs of claim preserve your position inside the case. The Pearlman creditor’s limitations panic was solvable without violating the stay.
What do I do if a creditor keeps collecting after I file?
Save everything: letters, voicemails, docket entries, service attempts. Your attorney can demand compliance and, if it continues, move for contempt and damages under § 362(k), which includes your attorneys’ fees for enforcing the stay.
Do stay violations require the creditor to have acted in bad faith?
No. A violation is willful when the creditor knew of the bankruptcy and intended its actions; a sincere but wrong belief that the stay did not apply is no defense. That is exactly why the cheap move is asking the bankruptcy court first.
How North Star Law Firm Can Help
North Star Law Firm works both sides of the automatic stay for New Mexico clients: enforcing it for debtors whose creditors keep pushing, and keeping creditors on the right side of § 362 so a collectible claim doesn’t turn into a fee award for the other side. Phillip Zagotti, JD/CPA, practices in the United States Bankruptcy Court for the District of New Mexico. The firm’s bankruptcy practice covers Chapter 7 fresh starts, Chapter 13 repayment plans, and creditor-side matters including trustee clawback defense. Whether you need the stay enforced or need to know exactly where it ends, contact North Star Law Firm before the next filing, not after.