The company filed for bankruptcy with debts worth $177m...
Canadian firm Gildan Activewear has agreed to buy American Apparel for $88m (€84m) - the company filed for bankruptcy for a second time in November of last year.
However, the company will take ownership of its brand name and some production facilities - but it will not take control of any of its 110 retail locations.
It is also unclear if the brand which has the tagline 'Made in America' will continue to be made in the US - the Canadian firm produces its goods in territories where it is cheaper to manufacture.
A spokesperson from the company told Reuters that any future deal will not be able to ship its factories out of the US:
"The manufacturing facilities were always a part of negotiations, and any decision by the buyer to not assume these operations is at their discretion."
Amazon and Forever 21 were linked with takeover bids for the struggling fashion firm.
"We see strong potential to grow American Apparel sales ... to drive further market share penetration in the fashion basics segment, both in North America and internationally," a statement from Gildan Activewear said.
It had put forward an initial bid of $66m to buy the company.
American Apparel declared bankruptcy with debts worth $177m.
It was founded in the late 1990s and took on a number social calls, including support for LGBT rights and a strict "sweatshop-free" policy.