Forever 21 Creditors Face Steep Losses Under Proposed Bankruptcy Plan

Creditors of Forever 21, including suppliers and vendors, stand to recover only a fraction of what they’re owed under the bankrupt fashion retailer’s latest restructuring plan, drawing sharp criticism from their legal representatives.

During a virtual court hearing on Tuesday, attorney Justin Alberto, representing a committee of unsecured creditors, said his clients—ranging from U.S. to China-based manufacturers—are “getting smoked” by a proposal that offers minimal repayments on outstanding debts.

The creditors’ committee is also scrutinizing a controversial January transaction in which JCPenney, through its parent company SPARC Group, acquired Forever 21. According to a recent court filing, the deal effectively saddled Forever 21 and its affiliates with JCPenney’s existing debt burden.

“The outcome of these cases is dire,” the committee warned in an April 10 filing, adding that the future of some of Forever 21’s largest vendors and their employees could be in jeopardy.

Forever 21’s U.S. operations filed for bankruptcy in March—its second filing in six years—with approximately $1.6 billion in liabilities. Under the proposed plan, unsecured creditors with around $433 million in claims would recover only 3% to 6% of what they’re owed. The company’s international branches remain unaffected.

The retailer has struggled amid declining mall traffic and stiff competition from online fast-fashion giants like Shein. Forever 21 has argued that the U.S. “de minimis” import rule gave foreign competitors an unfair edge by allowing them to ship low-value goods without customs duties—a policy that will end on May 2 following an executive order by President Trump.

Meanwhile, Authentic Brands Group, which owns Forever 21’s intellectual property and is a partner in SPARC Group, has indicated it may re-license the brand, potentially keeping the Forever 21 name alive in the U.S. in a new form.