PENNSYLVANIA BANKRUPTCY COURT FINDS CREDITOR’S CHALLENGE TO JUDGMENT A DEFENSIVE ACT EXEMPTED FROM BANKRUPTCY STAY
Pennsylvania’s bankruptcy court for the Eastern District recently denied a debtor’s motion to enforce a bankruptcy stay finding defensive actions taken by creditor Wells Fargo were exempted from the stay. In re: Tarani A. Johnson, Bky No. 26-10372 (DJB) (ED Penn May 29, 2026). By way of history, prior to petitioning for bankruptcy protection, Johnson filed a state court lawsuit against Wells Fargo for alleged violations of Pennsylvania’s Uniform Commercial Code.i
On January 30, 2026, Johnson filed her chapter 13 bankruptcy case, invoking the automatic stay, and on February 17, 2026, Johnson obtained a default judgment in the amount of $570.95 against Wells Fargo in her municipal court action.ii Without first seeking relief from the stay, Wells Fargo moved in the municipal action to set the judgment aside.
Before the municipal court ruled on Wells Fargo’s motion, Johnson sought to enforce the automatic stay against Wells Fargo by filing an emergency motion in the bankruptcy proceedings. The bankruptcy court started its analysis by explaining that the purpose of a stay is to “serve the interests of both the debtor and creditor” by providing breathing room from collection efforts and halting lawsuits that waste estate assets and prevent fair distribution to creditors.iii Importantly, the court noted that § 362(a)(1) prevented actions against the debtor, not actions initiated by the debtor.iv
In contrast to actions brought against the debtor, the court elaborated that actions brought “by the debtor…inure to the benefit of the bankruptcy estate” so they do not fall under the automatic stay.v The court elaborated that a bankruptcy stay does not prevent a debtor from “litigating as a plaintiff in a non-bankruptcy forum” if she “finds it desirable or profitable to do so.”vi The court also agreed with the debtor that the default judgment against Wells Fargo was estate property, and that Wells Fargo’s motion, if successful, would impair that property.vii However, that did not end the court’s analysis.
The court identified a narrow exception established by a line of cases that “permit defensive action in a debtor-initiated proceeding.”viii Explaining that “the automatic stay should not tie the hands of a defendant while the plaintiff debtor is given free rein to litigate,” the court concluded the relief Wells Fargo sought was defensive in nature and therefore was excepted from the stay.ix
Qualifying this exception, the court explained further that defensive actions can “cross the line” to offensive and therefore become subject to § 362(a)’s stay provision. For example, a party “seeking sanctions in the form of attorneys’ fees,” or moving for summary judgment, or moving to dismiss “a collateral action” with an intent to harass would be considered offensive actions prohibited by the stay.x Noting a lack of controlling precedent on the specific issue of whether a motion to set aside a judgment crossed the line from defensive to offensive action, the court concluded it did not.xi Explaining that Wells Fargo did not assert counterclaims or seek affirmative relief, but rather the right to answer Johnson’s complaint and assert defenses so Wells Fargo’s motion was “purely defensive” and therefore excluded from the stay.xii
The court noted it was comfortable with its holding because under the circumstances Wells Fargo could have obtained relief from the stay and Johnson failed to proffer any evidence she suffered damages as a result of Wells Fargo’s actions, a required element of §362(k). It is worth noting that just because you can, doesn’t mean you should. The court reiterated that parties who may be subject to the stay “proceed at their own risk.”xiii At the end of its opinion the court identified “additional observations” wherein the court adeptly advised that the better course of action would be to seek relief from the stay under § 362(d) prior to moving to set aside the judgment or to seek retroactive relief from the stay once the debtor sought to enforce the stay.xiv
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A Pennsylvania bankruptcy court recently denied a debtor’s motion to enforce a bankruptcy stay finding defensive actions taken by a creditor (“Wells Fargo”) were exempted from the stay. In re: Tarani A. Johnson, Bky No. 26-10372 (DJB) (ED Penn May 29, 2026). By way of history, prior to petitioning for bankruptcy protection, the debtor (“Johnson”) filed a state court lawsuit against Wells Fargo for alleged violations of Pennsylvania’s Uniform Commercial Code.
After filing for bankruptcy protection, Johnson obtained a default judgment against Wells Fargo in the state court action. Without moving for relief from the automatic stay, Wells Fargo sought to set the state court judgment aside. Before the state court ruled on Wells Fargo’s motion, Johnson sought to enforce the automatic stay against Wells Fargo by filing an emergency motion in the bankruptcy proceedings.
The bankruptcy court concluded Wells Fargo’s motion to set aside the default judgment was defensive in nature and therefore fell under a common law exception to the automatic stay. The limited exception allowed a creditor to engage in defensive actions when the action was filed by the debtor as opposed to against the debtor.
However, at the conclusion of its opinion the court adeptly advised that the better course of action would be to seek relief from the stay under § 362(d) prior to moving to set aside the judgment or to seek retroactive relief from the stay once the debtor sought to enforce the stay.xv
i In re: Johnson, at 2. Future references are to this citation unless indicated otherwise. ii In re: Johnson, at 2, 6.
iii In re: Johnson, at 4 (citation omitted).
iv In re: Johnson, at 4.
vIn re: Johnson, at 5.
vi In re: Johnson, at 4, 9.
vii In re: Johnson, at 9.
viii In re: Johnson, at 5-6, 9.
ix In re: Johnson, at 10-11 (quoting Gordon v. Whitmore (In re Merrick), 175 B.R. 333, 336-38 (B.A.P. 9th Cir. 1994).
xIn re: Johnson, at 11.
xi In re: Johnson, at 12.
xii In re: Johnson, at 12.
xiii In re: Johnson, at 4.
xiv In re: Johnson, at 14.
xv In re: Johnson, at 14.
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