Bankruptcy filings among multi-unit restaurant franchisees have surged so far this year due to challenging economics stemming from high labor and food costs, and slumping traffic as consumers close their wallets due to inflationary pressures.
There have been at least 10 significant multi-unit restaurant franchisee filings in 2026 representing several hundred locations across chains, including Hardee’s, Subway, Popeyes, Carl’s Jr., Moe's Southwest Grill and Applebee’s, said Bradford Sandler, partner at the corporate restructuring law firm, Pachulski Stang Ziehl & Jones.
In total, bankruptcy filings among all U.S. businesses have risen about 17% year-over-year through June 30, 2026 from about 23,000 to nearly 27,000, according to data from U.S. Courts.
At the time, 2024 was considered a peak year for restaurant bankruptcies with 16 chains or large franchises filing by August, said Sandler. Throughout 2025, there were more than 20, he said.
“We're on pace to match or exceed that in 2026,” Sandler said.
The restaurant chains most affected by bankruptcies tend to be ones with lower price points and quality that have struggled amid an ongoing movement towards “higher-end” fast casuals that offer better quality and are healthier, said Oren Bitan, co-chair of law firm Buchalter’s fiduciaries, receivers and trustees practice group.
There are a number of strategies restaurant operators could take to improve their financial situation, including investing in new technology and finding ways to reduce costs, experts say.
The level of support franchisors have offered to their struggling franchisees has been mixed, ranging from assisting with modernization improvements to taking them to court, said Sandler.
Support could be crucial. Legacy burger and fried chicken QSRs typically have aging real estate and value-dependent customers, while mid-tier casual dining restaurants have large dining rooms and high fixed occupancy costs. Both of these segments face the highest risk in the current economic environment, said Sandler.
“Costs are up, demand is down. Not a great place to be,” said Bitan.
A systemic issue
The number of restaurant segment franchisees filing for bankruptcy in 2026 are near pre-COVID-19 pandemic levels, when bankruptcies regularly occurred, Michael Ingram, vice president of the brokerage firm, National Franchise Sales.
Government assistance that businesses received after the start of the pandemic — including PPP loans and Economic Injury Disaster Loans — protected troubled locations for a few years, he said.
But bankruptcy trends “go in cycles, and when sales are soft like they are now, that is what causes them to break,” Ingram said.
After closing all 77 of its Hardee’s locations throughout nine states in December, ARC Burger LLC filed for Chapter 7 bankruptcy in April, for example. Hardee’s had sued the franchisee, alleging it breached its franchise agreements.
Another large Hardee’s franchisee, Superior Star Corp., filed for Chapter 11 bankruptcy protections in July. The company, which had between $10 million and $50 million in assets and the same range of liabilities at the time of the bankruptcy, cited unexpected expenses, tax levies, rental obligations and sales problems at aging restaurants in its court filings.
Several other large fast food operators filed for Chapter 11 bankruptcy protections this year. That includes Sailormen, an operator of 136-unit Popeyes restaurants in Florida and Georgia in January; Friendly Franchisees Corporation, the operator of 65 Carl’s Jr. locations in April; and MTF Enterprises, a Subway operator with 43 stores in Maine, New Hampshire, Pennsylvania and Virginia in January.
The trend has affected fast casual and casual dining formats as well, including Neighborhood Restaurant Partners Florida, the operator of 53 Applebee’s locations in March and Quality Fresca, a 38-store Moe’s Southwestern Grill franchisee.
There are a “substantial number” of smaller single and few-unit operators whose bankruptcy filings have gone largely unnoticed, Sandler said.
“That variety and volume demonstrate that this is systemic, not cuisine or brand-specific,” Sandler said.
High costs, soft profits, lots of debt
Bankruptcy can function as a consolidation strategy for financially distressed operators, said Sandler. Through Chapter 11, operators can shed their unprofitable leases and sell viable units to better-capalitized franchisees, he said.
An automatic stay kicks in as soon as a bankruptcy is filed, protecting a franchisee that may be on the brink of their franchisor terminating their franchise agreement, added Bitan.
But there are a number of factors that led to the sheer number of bankruptcy filings.
There isn’t a recession at the moment, but restaurants are acting like they’re in one, to an extent, by raising prices in response to high inflationary food and labor costs, said Ingram.
Food and labor costs have increased 36% since 2019, while franchisee margins typically run only 3%-to-5% pre-tax, said Sandler.
The higher price points have netted fewer customers, particularly among lower income patrons who are also grappling with higher gas prices and opting to eat at home on a budget instead of eating out, Ingram said.
Some operators have also turned to unsustainable high-leverage debt and financing options in hope that operations will eventually stabilize, said Kevin Clancy, a partner at the accounting and advisory firm, CohnReznick.
Many portfolios were assembled with leverage during the 2019 to 2022 franchise mergers and acquisitions boom when rents and multiples were at their peak, said Sandler. Deferred maintenance, renovating aging stores and completing capital-intensive remodels are coming due at a time when operators have little free cash flow, he said.
But interest rates are still high, and fixed obligations, including royalties, ad-fund contributions, rent, and debt service, don’t soften when sales do, said Sandler.
Now, some franchisees, including MTF Enterprises, fell into a “distinctly modern distress pattern” of turning to merchant cash advance financing — “usually the last chapter before a bankruptcy filing,” said Sandler. The Subway franchisee, Sandler said, “cited daily and weekly MCA draws against its sales as the primary cause of its collapse.”
A shared problem
Franchisors have taken a range of different strategies when approaching their struggling franchisees. That has often included renegotiating with struggling franchisees to the extent they can offer some kind of forbearance on some of the terms, said Bitan.
Notably, Burger King committed over $2 billion towards improvements through programs including its Reclaim the Flame and Royal Reset programs. The chain offered remodel incentives funded with upfront cash and additional financial support for stronger operators, said Sandler. The tactic improved franchise unit profitability, he said.
But other franchisors have approached distressed franchisees with enforcement instead of accommodation, said Sandler. Hardee’s, for example, sued ARC Burger for $6.5 million over unpaid royalties and fees. After the franchisee filed for Chapter 7, Hardee’s moved to reclaim many of its locations, he said.
Franchisors that treat the balance sheets of their franchisees as a shared problem will ultimately keep their best operators, while “those who don't will keep meeting them in bankruptcy court,” Sandler said.
“What franchisors have generally not done is provide meaningful royalty relief, and remodel mandates have too often been treated as fixed obligations rather than negotiable ones,” said Sandler.
To the extent they have flexibility, franchisors should try to reduce their franchisee’s operational burdens, such as providing lower cost food and supply options with vendors, creating economies of scale, said Clancy.
Operators should also continue investing in technology solutions that can help lower costs, improve customer experience and ultimately offset some of the financial and operational challenges they face, said Clancy.
That includes predictive inventory and supply tools, self-service kiosks, point-of-sales apps, and loyalty programs that monitor and analyze customer preferences and offer promotions, he said.
And they should be proactive in finding ways to reduce their real estate costs, such as having continued discussions with landlords about alternative lease structures that better support short-term and long-term financial viability, Clancy said.
More importantly, restaurant operators need to demonstrate value to their consumers who are also navigating food costs that have steadily increased and outstripped income, said Clancy.
“Restaurants need to make a case for why that dining experience provides a better return than eating at home,” he said.
