Business bankruptcies are up for restaurants, contractors and realtors. I’ve had a 50% increase in the number of people calling me for bankruptcy this year over last year. Nationwide, bankruptcy filings are also up almost 20% in 2025. Indeed, this is the second, consecutive year that bankruptcies – both business and personal — have increased. I’m getting more calls from small business owners than I am from individuals. But particularly hard hit appear to be owners of restaurants, contractors and real estate agents. At least that’s whom I’m getting the most calls from. Why?
Restaurants
Restaurant owners have been hard hit nationally, but uniquely so in the LA area. First, some of the lengthiest, mandated-Covid closures in the country financially weakened area restaurants, many of whom haven’t seen traffic return to pre-pandemic levels. Second, wages have increased sharply since 2020, with LA posting some of the highest minimum wages in the country. Food inflation has been significant, clocking in at 25% since 2020, with coffee rising an astonishing 160%, beef 70% and fresh produce 35% in that time. Third, the 2023 writer’s strike and subsequent contraction of the entertainment industry, and this year’s wildfires and crackdown on undocumented immigrants, have sharply lowered restaurant visits in many LA neighborhoods. Finally, many people are cutting back on discretionary spending in anticipation/fear of upcoming unemployment. Unsurprisingly, LA has one of the highest rates of restaurant closures in the nation this year. And a lot of those owners are coming to me because the economics of their restaurant simply don’t work anymore.
Realtors
Since the real estate boom of Covid ended in early 2023, the California real estate market has faced many challenges: mortgage rates have more than doubled since 2021’s low 3% average, home inventory has been stagnant or declining as homeowner’s with 3% mortgages stay put rather than move, and homeowner’s insurance has increased 20% annually, as more Los Angeles area homeowners are dumped from private insurance due to increased wildfire risk. In response to these challenges, as well as a sense of general economic anxiety this year, the number of homes sold in California declined almost 6% in 2025, with the average sales price declining 2%. All but the top-selling real estate agents have been hit hard by this decline, which comes on the heels of 2024’s settlement of the lawsuit against the National Association of Realtors which caused the average Los Angeles area realtor’s commission to decline from just under 6% to about 5%. As a result of all these factors, the number of real estate agents – particularly those who sold under 10 homes during boom years – has ballooned.
General Contractors
Slowing homes sales have cut into business for general contractors, and tradesmen such as electricians and plumbers. Owners of building trade businesses have also faced a 35% increase in the cost of building materials, particularly lumber and steel, since 2020. Tariffs imposed in 2025 have contributed substantially to the increased costs. Labor shortages have also hit the industry hard, as enforcement of undocumented worker laws has reduced labor supply and thus increased wages contractors need to pay. Unsurprisingly, I see a lot of tax debt with contractors: one of the only ways for many to make payroll in the short term is to not remit payroll taxes (Medicare and Social Security withheld from employee paychecks) to the federal government, in the hopes that business will improve shortly and they’ll be able to repay what they’ve stiffed the government. That doesn’t always work: if economic conditions don’t improve, strengthening cashflow, there’s still not enough money at the end of the month to pay all the bills – including what’s owed to the IRS and FTB on employer’s payroll tax obligation. This puts business owners into a particular bind because payroll tax debt can never be discharged in bankruptcy, unlike income tax debt.
Are you a struggling business owner? Call me if you’re under financial stress and let’s discuss what your options look like. 818.889.8080.
November 6, 2025