All you need to do is put an event in that disables the physics behaviour of the knife as soon as it collides with the target. So your events would be something like:
(Event)
For Each Knife
Knife is overlapping Target at offset -10 (this will ensure the knife overlaps the target by 10 pixels and looks like it has pierced it)
(Action)
Knife Set Physics Disabled
That should stop the object but retain the angle etc.
The only issue with this method is it is indiscriminate about which part of the knife sticks into the object (so if the handle hits the object it will still stick in)