What do you do if all your characters need to rest on skylanders?

Either Restart the chapter, or shutdown the game and start over. There is NO OTHER ALTERNATIVE. Once they are resting, they will NOT recover until you begin a new chapter or restart the one where they were killed. If you are in a BOSS fight at the end of a chapter. Try to avoid close-in fighting. You WILL get killed soon and fast. Try to stand back and SHOOT the bad guys from as far away as you can. Spin and shoot as fast as you can. If your guys are getting killed fast, then try replaying the lower (easier) levels of the game OVER AND OVER so that your skylanders can "Level UP". This gives them more LIFE energy and they will live longer. If they have accumulated enough money and you have completed Chapter 3, go to Persephony in the ruins and buy as many upgrades for EACH skylander as that skylander has money to buy. Those upgrades will give the skylander more firepower. Of course Activision would LIKE for you to buy more skylanders. There are 32, plus some Legendary versions. The legendary are slightly stronger than the regular version. In reality, you CAN completely finish the ENTIRE game doing ALL the chapters and gathering ALL the various gems, treasures, hats etc. With only 8 skylanders. One for each element. It IS tough but it can be done. It is easier if you have 2 of each element. You can always remove a weakened skylander from the portal and replace him BEFORE the weak one dies, and keep fighting. Then when the fight is over you can put the weak one back on and eat food to power back up. If you have limited funds, then I would recommend purchasing the ones that are the strongest, fastest, etc. If possible buy skylanders that can FLY. The ones with wings. Some elements don't have flying members. If you are limited on funds, research your options on the web and decide which ones make the most sense for you.