Restaurant bankruptcies are expected to rise in 2025 as many chains continue to struggle with the debt accumulated during the COVID-19 pandemic, warns bankruptcy attorney Daniel Gielchinsky. According to Gielchinsky, many restaurants may not survive the next few years. “Some restaurants that are here today may not exist in five years,” he said, adding that many businesses will shrink their operations significantly.

Hooters of America could be the next major chain to file for bankruptcy, with sources reporting that the company is considering Chapter 11 protection as a way to restructure and manage its debt. Hooters would join other well-known brands like TGI Friday’s, Denny’s, Ruby Tuesday, and Red Lobster, which have already sought bankruptcy protection in recent years.

In addition to bankruptcies, some restaurants are shrinking their presence. Wendy’s announced plans to close 140 underperforming locations by the end of 2024 to improve its restaurant footprint and overall system health.

While large chains face significant challenges, smaller restaurants, including mom-and-pop establishments, are also struggling, according to Gielchinsky, founder of DGIM Law in South Florida. The pandemic triggered a dramatic drop in customer traffic, and restaurants had to cover fixed costs like rent, insurance, and payroll while facing low sales. To stay afloat, many took out loans or relied on government aid, leading to heavy debt burdens.

“There is no avoiding debt,” Gielchinsky said. “Restaurants either need to repay that debt or face bankruptcy and restructuring.”

Expectations that restaurant spending would return to pre-pandemic levels were not met. Many consumers have changed their habits, eating at home more often and spending less on dining out. This shift, combined with rising inflation, especially among lower-income households, has hurt restaurant traffic, particularly in quick-service chains.

The popularity of weight-loss drugs has also impacted the restaurant industry, as more people focus on healthier eating at home.

Major chains are feeling the strain. Yum! Brands, which owns KFC, Taco Bell, and Pizza Hut, reported a 2% decline in sales at KFC stores for the fiscal year. McDonald’s also faced challenges in 2024, falling short of expectations. In response, McDonald’s introduced a new value menu to attract customers, but traffic remains slow. The company has already warned that the U.S. restaurant industry is expected to continue facing a tough environment in 2025.

As these factors continue to affect the restaurant industry, more restaurant bankruptcies are likely in the years ahead.