Freddy's Steak Burger Franchise Files for Chapter 11 Bankruptcy Protection

In November 2025, M&M Custard LLC, one of the largest franchise operators of Freddy’s Frozen Custard & Steakburgers, filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Kansas. The filing revealed stark financial distress: approximately $5.2 million in assets versus about $27.7 million in liabilities, owed to more than 100 creditors. Though Freddy’s as a brand is not declaring bankruptcy, the collapse of a major operator raises critical questions about the underlying causes of the franchisee’s insolvency.

One of the most significant drivers behind M&M Custard’s downfall was its aggressive expansion into the Chicago market. Beginning in 2021, the company acquired three Freddy’s restaurants in the city and eventually grew to operate as many as eleven locations. However, these Chicago businesses failed to reach profitable scale. In court filings, M&M Custard’s managing member described these Chicago stores as generating negative EBITDA, calling them a “toxic asset” that dragged down the rest of the business. Despite operational improvements and increased brand awareness, the market simply did not deliver sustainable returns. 

Beyond missteps in Chicago, M&M Custard’s financial woes were amplified by broad pressures common in the fast-casual restaurant industry. Operating costs have soared, including labor, food, and real estate-related expenses. High borrowing costs of commercial leases and long-term debt made it difficult for the franchisee to maintain adequate liquidity. These cost burdens, coupled with a niche menu (custard and steakburgers) that may be more sensitive to consumer shifts, left little room for margin flexibility.

The bankruptcy also underscores systemic risks embedded in Freddy’s franchise system. According to analysis, the franchisee’s contractual obligations and debt structure exacerbated its exposure: royalty fees, real estate debt, and tight cash reserves made it vulnerable to downturns. Moreover, when a major franchisee struggles, the ripple effects can destabilize operations, erode franchisee confidence, and hurt brand reputation. In M&M Custard’s case, the decision to separate its business into two units  the legacy, profitable stores and the loss-making Chicago stores suggests deep structural misalignment.

In conclusion, M&M Custard’s bankruptcy can be attributed to a combination of strategic overreach (especially in Chicago), rising cost pressures, and structural fragilities in the franchise model. While the Freddy’s brand itself claims the issue is isolated and not reflective of its entire system, the failure of such a large operator signals potential vulnerabilities. For stakeholders  including other franchisees, investors, and the parent company — this case offers a cautionary tale about balancing growth ambitions with financial discipline. The successful reorganization of M&M Custard may restore some stability, but the episode raises important questions about sustainability in the fast-casual, frozen-dessert niche.