Item 4 of the Franchise Disclosure Document requires franchisors to disclose whether they, their parents, affiliates or key executives have been involved in a bankruptcy proceeding during the past ten years. This includes:
reorganizations
liquidation proceedings
Chapter 7, 11 or 13 filings
business or personal bankruptcies
ongoing bankruptcy cases
This disclosure ensures prospects understand the financial history and stability of the leadership behind the franchise system.
Item 4 is critical for franchise buyers evaluating:
financial stability of the franchisor
leadership’s creditworthiness
track record of fiscal management
business continuity and long term risk
Bankruptcy does not automatically signal an unstable system, but it raises due diligence questions such as:
Was the bankruptcy related to another venture?
Did it involve the same executives running the current franchise?
Was the cause operational or external (e.g., market crash)?
State examiners scrutinize Item 4 closely when a franchisor is emerging or less than five years old.
Item 4 must disclose:
all bankruptcy filings in the last 10 years
who filed (individual or entity)
court location and docket information
type of bankruptcy
status and outcome
any reorganization plans
relationship to the franchise offering (if applicable)
Franchisors cannot omit or minimize the significance of past filings.
State examiners will flag Item 4 when:
a bankruptcy is disclosed without sufficient detail
a franchisor claims “not applicable” when public records show otherwise
executives were involved in multiple failed ventures
the franchisor is undercapitalized
the bankruptcy may affect franchise support
They often request related financial documentation before approving registration.
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Last updated: November 26, 2025
