Party’s Over? Not So Fast – Party City Vendors Face Bankruptcy Preference Claims

For some Party City vendors, the party ended when the retailer filed for bankruptcy two years ago. Now comes an unwelcome after-party: lawsuits seeking the return of payments received within 90 days of the bankruptcy filing.

Elizabeth LaPuma, the trustee of the Party City Liquidating Trust, has begun filing a wave of preference complaints in the Southern District of Texas. One of many complaints, filed November 3, 2026, seeks approximately $26,000 from ComplyRight, Inc. for two payments made before Party City’s bankruptcy. But a complaint contains mere allegations and is not a judicial determination that the money must be returned.

The filings reach well beyond lesser-known suppliers. Familiar names among the defendants include Verizon Wireless Services, Uber Technologies, TikTok, Adobe, and Sesame Workshop. Well over 150 adversary proceedings have been filed already.

Party City filed for Chapter 11 relief on December 21, 2024. Its bankruptcy liquidation plan was confirmed on August 27, 2025. Under the plan, the liquidating trust received the right to pursue certain claims, including preference actions. With the two year statute of limitations approaching, the trustee is pursuing recovery of “preferential” payments made before the bankruptcy.

Party City is not alone. A separate wave of preference lawsuits has recently been filed against Forever 21 vendors in its Delaware bankruptcy case. These filings are a reminder that a customer’s bankruptcy can generate litigation long after the initial filing.

Preference claims target payments made on account of existing debts during the 90 days before bankruptcy that allowed a creditor to receive more than it would have received in a hypothetical Chapter 7 liquidation. A vendor need not have done anything wrong to face a preference claim. The Bankruptcy Code does provide significant defenses, and the vendor’s payment history helps flesh out the skeletal story outlined in a complaint.

For example, the ordinary course of business defense may protect payments on debts incurred in the ordinary course if the payments were consistent with the parties’ historical dealings or ordinary industry terms. The analysis can turn on payment timing, payment methods, and collection activity. A payment that followed an established business pattern may warrant a very different assessment from one made in response to unusual collection pressure.

A vendor that continued supplying goods or services on unsecured credit after receiving a challenged payment may also have a subsequent new value defense, potentially reducing its exposure. The timing of that additional value—and whether it was paid for by an otherwise unavoidable transfer—can affect the calculation. Separately, the contemporaneous exchange for new value defense may protect transactions intended to be, and actually made as, substantially contemporaneous exchanges of payment for new goods or services, such as qualifying cash-on-delivery transactions.

The source and ownership of the funds can matter as well. Under the earmarking doctrine, funds supplied by a third party specifically to pay a designated creditor may, in certain circumstances, fall outside the debtor’s property and therefore outside preference recovery.

These defenses are not theoretical possibilities. In the ComplyRight complaint, the trustee expressly identifies potential subsequent new value and discusses the possible ordinary-course defense. The existence and extent of any defense require a review of the underlying records.

A vendor receiving a complaint, should immediately identify the response deadline and preserve invoices, payment histories, delivery records, credit terms, and collection communications. Do not assume the amount demanded in the complaint the amount owed. A vendor’s records can be central to evaluating defenses and determining whether to contest or resolve the claim.

A preference compliant is a lawsuit, not simply a demand for payment. Even when received by mail, it is a formal litigation in the bankruptcy court that requires a timely response.  An early, document-driven review with bankruptcy counsel can help identify defenses, assess exposure, and develop a cost-effective response.

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