When a burger chain files Chapter 11, the restaurants generally stay open while the company uses bankruptcy court to walk away from unprofitable leases, restructure its debts, and either reorganize or sell the brand. What happens when a burger chain files Chapter 11 depends on where you sit: employees, gift card holders, vendors, franchisees, and shareholders each land in a different place in the priority line, with very different protections.
BurgerFi’s September 2024 filing is a recent example. The company and 114 affiliated entities entered Chapter 11 together, with its chief restructuring officer citing “a drastic decline in post-pandemic consumer spending amidst sustained inflation and increasing food and labor costs.”1PR Newswire. BurgerFi International Files for Protection Under Chapter 112Stretto. BurgerFi International, Inc., et al. Case Information The brands were sold at auction that November through credit bids, and a liquidating trust plan was confirmed in March 2025.3United States Bankruptcy Court. BurgerFi International Motion for Clarification Opinion The broader industry saw similar filings across 2024, including Red Lobster, TGI Fridays, and large franchisees running Hardee’s, Arby’s, and Applebee’s stores. One Hardee’s operator that once ran 145 restaurants reported that many locations “were operating at a loss for a prolonged period of time.” Wendy’s franchisee Starboard Group, with 72 Florida locations, filed in late 2023.
The Restaurants Stay Open
The moment the petition is filed, the automatic stay freezes almost all collection activity against the company. Creditors cannot sue, enforce judgments, seize property, or foreclose, and landlords cannot pursue eviction.4Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay For customers, the change is mostly invisible. Restaurants keep operating, the menu is the same, and employees keep working. Management uses the breathing room to sort profitable locations from ones that need to close.
A chain that was losing money before filing still needs cash to make payroll and buy inventory. Most chains arrange debtor-in-possession (DIP) financing, a court-approved loan that funds operations during the case. The bankruptcy code lets the company borrow with special protections for the lender, including in some cases a priming lien that jumps ahead of existing secured debt when the company shows it could not get financing any other way.5Office of the Law Revision Counsel. 11 USC 364 – Obtaining Credit DIP loans carry higher interest rates and strict conditions: detailed reporting, plan milestones, and sometimes forced-sale deadlines if milestones slip. BurgerFi’s DIP financing funded the auction that sold its brands within months of filing.
Which Locations Close
The single most important tool in a restaurant Chapter 11 is the right to reject leases and other ongoing contracts. The bankruptcy code lets the company decide which agreements to keep and which to walk away from.6Office of the Law Revision Counsel. 11 US Code 365 – Executory Contracts and Unexpired Leases
Rejecting a lease on an unprofitable restaurant stops the rent obligation. The landlord ends up with a general unsecured claim for damages, but the chain is done paying. Assuming a lease means committing to it going forward and curing any existing defaults. The same logic runs through franchise agreements: a franchisor can reject agreements for weak territories, and a franchisee can reject agreements whose royalty and marketing obligations no longer pencil out. If the company does not make a decision on a nonresidential lease within the timeframe the code sets, the lease is automatically deemed rejected.
What Happens to Employees
Workers have more protection than they usually expect, though the limits matter. Unpaid wages, salaries, commissions, and vacation or sick pay earned within 180 days before the filing date are priority claims up to $17,150 per employee, and unpaid employer contributions to benefit plans get the same priority cap.7Office of the Law Revision Counsel. 11 USC 507 – Priorities A reorganization plan cannot be confirmed without paying these claims in full. In practice, courts routinely authorize payment of pre-filing wages at the very start of the case so employees are not left waiting.
When the chain closes locations, the federal WARN Act may require 60 days’ advance notice if the employer has 100 or more qualifying workers. Missing that notice exposes the company to back pay and benefits for up to 60 days per affected employee. Bankrupt chains sometimes invoke the “faltering company” exception, which allows shorter notice if the employer was actively seeking financing and reasonably believed that announcing closures would kill the deal. Courts scrutinize these claims closely, and vague assertions of financial trouble are not enough.
Gift Cards and Loyalty Points
Gift cards and loyalty points are unsecured claims, which puts them near the bottom of the repayment ladder. In a straight liquidation, they would likely be worthless. But chains in Chapter 11 have a strong incentive to keep honoring them, because customers who stop coming back stop coming back for good.
Most chains handle this on day one by filing a motion asking the court to authorize continued honoring of pre-filing customer obligations. Courts generally approve these requests because keeping the customer base is essential to surviving long enough to reorganize.8United States Bankruptcy Court. B-9013-3 First Day Motions in Chapter 11 and 12 Cases If you are holding a gift card from a chain that just filed, watch the court docket or the company’s website. If the case converts to Chapter 7 liquidation, gift card holders become general unsecured creditors with little realistic chance of recovery.
Vendors and Suppliers
Food distributors, packaging companies, and equipment suppliers cannot collect on pre-filing invoices while the stay is in place, but several protections keep the supply chain from collapsing.
Critical Vendor Motions
The chain can ask the court for permission to pay specific pre-bankruptcy debts to vendors whose products are essential. The company has to show that losing the supplier would cause concrete harm, that no reasonable alternative exists, and that the vendor will keep supplying goods in exchange for payment.9United States Bankruptcy Court Eastern District of Missouri. Chapter 11 Guidelines – Essential Suppliers and Critical Vendors For a burger chain, the primary beef and bun suppliers almost always qualify.
The 20-Day Rule
Vendors who delivered goods within 20 days before the filing date have an advantage: the value of those goods is an administrative expense, paid ahead of most other creditors.10Office of the Law Revision Counsel. 11 USC 503 – Allowance of Administrative Expenses Administrative expenses generally must be paid in full for a plan to be confirmed.11Office of the Law Revision Counsel. 11 USC 1129 – Confirmation of Plan
PACA Trust for Produce
Suppliers of fresh and frozen fruits and vegetables get stronger protection under the Perishable Agricultural Commodities Act. The PACA trust puts the chain’s trust assets off-limits for general distribution until valid PACA trust claims are paid.12Agricultural Marketing Service. PACA Trust The trust covers the commodities, any food products derived from them, and receivables or proceeds from their sale.13Office of the Law Revision Counsel. 7 USC 499e – Perishable Agricultural Commodities To preserve those rights, the supplier has to give written notice within 30 days after payment was due.
What Happens to Shareholders
If you hold shares in a publicly traded burger chain that files Chapter 11, the news is almost always bad. Under the absolute priority rule, common stockholders sit at the bottom of the repayment hierarchy. Secured lenders get paid first, then priority unsecured creditors, then general unsecured creditors, and only then equity. The company rarely has enough value left to reach that far.
Reorganization plans frequently cancel existing common stock or dilute it to near zero by issuing new shares to creditors in exchange for debt forgiveness. During the case itself, shareholders lose meaningful influence over corporate decisions because the company is being managed for creditors. The realistic expectation is that your shares will be worthless once the plan is confirmed.
How the Case Ends
A confirmed reorganization plan is the intended exit. The company files schedules of assets, liabilities, contracts, and leases using standardized bankruptcy forms, then negotiates a plan with creditor classes.14United States Courts. Chapter 11 – Bankruptcy Basics15United States Courts. Bankruptcy Forms Two tests dominate confirmation: the best interests test, which requires every dissenting creditor to receive at least what it would get in a Chapter 7 liquidation, and the feasibility test, which requires the court to find the plan is not likely to be followed by another bankruptcy.11Office of the Law Revision Counsel. 11 USC 1129 – Confirmation of Plan If a creditor class votes no, the company can still confirm through a cramdown, provided the plan does not unfairly discriminate and is fair and equitable to the dissenting class.
Not every case gets there. If the company cannot stabilize, misses plan deadlines, mismanages finances, or defaults on a confirmed plan, any party in interest can ask the court to convert the case to Chapter 7 liquidation or dismiss it.16Office of the Law Revision Counsel. 11 USC 1112 – Conversion or Dismissal Grounds include continuing losses with no realistic chance of recovery, gross mismanagement, failure to pay post-filing taxes, and inability to carry out a confirmed plan. In a Chapter 7 conversion, a trustee takes over, the restaurants close, and remaining assets are sold in priority order. The brand may be sold, but the physical locations go dark, and for employees, vendors, and gift card holders, this is the worst outcome.
Small Franchisees and Subchapter V
A single-unit franchisee or small multi-unit operator usually cannot afford a traditional Chapter 11. Subchapter V is a streamlined track for businesses whose total debts do not exceed $3,424,000 as of 2026, a threshold that adjusts periodically for inflation.17Office of the Law Revision Counsel. 11 USC 1182 – Definitions The debtor must file a reorganization plan within 90 days of the petition. No official creditors’ committee is appointed, which cuts a major source of legal fees. A Subchapter V trustee is assigned to help facilitate a consensual plan and monitor payments, though the trustee’s role is narrower than a creditors’ committee’s and does not automatically include investigating claims or bringing lawsuits.
For a franchisee carrying lease debt, equipment loans, and vendor obligations that add up to a few million dollars, Subchapter V can be the difference between an affordable restructuring and a liquidation forced by legal costs alone.