Quick Answer
Many vendors sued in the Forever 21 bankruptcy are also owed money by Forever 21 for unpaid invoices. The preference complaints ask the U.S. Bankruptcy Court for the District of Delaware to disallow those vendors’ claims under 11 U.S.C. § 502(d) until the preference is repaid. Unpaid invoices do not cancel out a preference claim on their own, but they can matter a great deal to a vendor’s defense, especially through the subsequent new value defense. U.S. and foreign vendors should review both sides of their Forever 21 relationship together.
Two Sides of the Same Relationship
When Forever 21 filed Chapter 11 on March 16, 2025, many vendors were left with unpaid invoices. Some filed proofs of claim in In re F21 OpCo, LLC, Case No. 25-10469 (MFW). Now, the Plan Administrator, Steven Balasiano of MHR Advisory Group, LLC, is suing many of those same vendors to recover payments Forever 21 made between December 16, 2024 and March 16, 2025.
To a vendor, this can feel backward: Forever 21 still owes you money, and yet it is suing you. The law treats the two as separate, but they are closely connected, and understanding the connection can reduce a vendor’s exposure.
How the Complaint Targets Your Claim: § 502(d) and (j)
Each Forever 21 preference complaint includes a count asking the court to disallow the vendor’s claims under 11 U.S.C. § 502(d) and to reconsider any already allowed claims under § 502(j). In practical terms, the Plan Administrator is asking the court to block the vendor from receiving any distribution on its claim until the vendor repays the preference.
With general unsecured creditors projected to recover well under 1% in this case, many vendors find their unsecured claims worth very little in dollars. But claim disallowance can matter more for vendors that hold priority or administrative claims.
Why Unpaid Invoices Do Not Simply Offset the Preference
A common reaction is, “Forever 21 owes us more than it is asking for, so we owe nothing.” Unfortunately, a preference claim is not automatically offset by the vendor’s unpaid prepetition invoices. The vendor’s claim is paid, if at all, through the bankruptcy distribution process, while the preference must be repaid in full unless a defense applies.
That said, unpaid invoices are often central evidence for the vendor’s defenses.
How Unpaid Invoices Help the Defense
Subsequent new value. Goods or services the vendor provided to Forever 21 after a preference payment, and that were never paid for, can reduce the preference claim. The same unpaid invoices listed in a proof of claim are often the starting point for this defense, though dates and other details must be reviewed carefully.
Ordinary course and contemporaneous exchange. A proof of claim and the account history behind it can also help show the vendor’s normal payment terms with Forever 21 and whether those terms changed during the preference period.
The plaintiff’s due diligence duty. The plaintiff must consider known defenses before suing. A vendor’s proof of claim, which was filed in the bankruptcy and available to the Plan Administrator, can support an argument that new value information was available before the complaint was filed.
503(b)(9) and Administrative Claims
Vendors that delivered goods to Forever 21 in the 20 days before the bankruptcy filing may have asserted a claim under 11 U.S.C. § 503(b)(9), which receives administrative priority rather than general unsecured treatment. Vendors that supplied goods or services after the filing may hold other administrative claims.
These higher-priority claims can have more real value than a general unsecured claim, which makes the § 502(d) disallowance count more significant. They can also overlap with the new value defense, so the two should be analyzed together to avoid counting the same shipment twice or giving up value unnecessarily.
What Happens to Your Claim If You Repay a Preference: § 502(h)
If a vendor repays a preference, it generally receives a general unsecured claim for the amount repaid under 11 U.S.C. § 502(h). In this case, with unsecured recoveries projected well under 1%, that claim may be worth very little. Settlements often address whether this claim is kept, waived or limited, so the settlement terms should be reviewed carefully.
Issues for Foreign Vendors With Claims Against Forever 21
About 50 of the Forever 21 preference lawsuits name companies that appear to be based outside the United States. Many of these overseas factories and trading companies were owed money for production orders when Forever 21 filed.
- The same claim rules apply. A foreign vendor’s proof of claim is subject to the same § 502(d) disallowance request as a U.S. vendor’s.
- Shipping dates matter twice. FOB ship dates and delivery dates affect both the vendor’s 503(b)(9) eligibility and its new value defense, and should be reviewed together.
- A default affects both sides. A foreign vendor that ignores the complaint risks a default judgment for the full amount and the loss of any distribution on its claim.
- Records in other languages. Foreign vendors should prepare an English summary of unpaid invoices, shipping documents and correspondence for their attorney.
What to Gather Now
- A copy of any proof of claim or 503(b)(9) claim you filed, with its supporting documents.
- Your accounts receivable aging for Forever 21 as of March 16, 2025.
- Invoices, purchase orders and shipping or service records for December 2024 through March 2025.
- Your payment history with Forever 21 for at least two years before the bankruptcy.
- The summons, complaint and Exhibit A, with the summons issue date noted.
Frequently Asked Questions
Forever 21 still owes us money. Can it still sue us for preferences?
Yes. A preference claim is separate from the vendor’s claim for unpaid invoices, and the unpaid amount does not automatically offset it. Unpaid invoices can, however, support defenses such as subsequent new value.
What does § 502(d) mean in the Forever 21 complaint?
It asks the court to disallow the vendor’s claims against the estate until the vendor repays any preference it is found to owe.
Does a 503(b)(9) claim protect me from a preference lawsuit?
No. It is a separate priority claim for goods delivered in the 20 days before the bankruptcy, but it can be affected by the § 502(d) disallowance request and can overlap with the new value defense.
If I settle, do I get a claim for what I repay?
Generally, a vendor that repays a preference receives a general unsecured claim under § 502(h), though settlements often waive or limit it.
Do these rules apply to foreign vendors?
Yes. Foreign vendors’ claims are treated the same way, and their shipping dates can affect both their claims and their defenses.
Talk to a Forever 21 Preference Defense Attorney
Kasen Law Group defends U.S. and foreign vendors in preference cases in the Delaware Bankruptcy Court and reviews their claims against the estate at the same time. We have resolved 75 preference and fraudulent transfer matters with an average claim reduction of 90.8%.
Call (856) 880-1010 or email Hello@BankruptcyAttorney.co for a free consultation. Learn more about our preference defense services and proof of claim services, or read about the answer deadline for Forever 21 vendors.
Bankruptcy Attorney Co. is a trade name of Kasen Law Group, P.C. This article is general information about bankruptcy law and is not legal advice. Prior results do not guarantee a similar outcome. Jenny R. Kasen is admitted to practice before the United States Bankruptcy Courts for the District of Delaware, the District of New Jersey, the Eastern District of Pennsylvania, and the Southern District of Florida.