A Texas bankruptcy judge has officially confirmed Party City’s Chapter 11 liquidation plan, pushing the struggling retailer one step closer to winding down operations. The approval came Wednesday, despite strong objections from the U.S. Trustee’s Office, which claimed the plan improperly slashes administrative claims and risks skirting the Bankruptcy Code.
During the virtual hearing, U.S. Bankruptcy Judge Alfredo R. Perez emphasized that while the outcome is far from ideal, it provides a significantly better recovery for creditors compared to a Chapter 7 liquidation.
“In Chapter 7, administrative claimants might see only half — or even less — of what they’ll get here, while unsecured creditors would walk away with nothing,” Judge Perez said. “This isn’t the outcome anyone would prefer, but it’s the best outcome under the circumstances.”
Trustee Pushback and Consent Dispute
The U.S. Trustee’s Office filed objections arguing the plan’s reliance on an opt-out consent mechanism fails to prove true agreement from administrative claimants.
“There’s no clear evidence of who consented and who didn’t,” said Jana Smith Whitworth, representing the trustee. “The Bankruptcy Code requires administrative claims to be paid in full, and this scheme risks circumventing that mandate.”
The trustee further alleged the plan attempts to reroute funds, with $1 million earmarked for unsecured creditors that should legally go to administrative claims first.
