The decision grants the retailer breathing space to improve its financial position, pay its staff and hold off creditors.
Circuit City, the number two electricals retailer in the US after Best Buy, said filing for bankruptcy will allow it to have “adequate merchandise flow to stores during the important holiday season”.
It has negotiated a US$1.1 billion (£714 million) revolving credit facility to replace its US$1.3 billion (£843 million) asset-backed facility from its lenders.
The retailer will axe as many as 700 jobs at its headquarters in Richmond, Virginia, following a store closure programme announcement last week.
The shutters are being brought down on 155 outlets, as 20 per cent of the retailer’s US workforce is made redundant.
The process of closing stores began last week. Two outlets are still programmed to open next year, but new store openings have been suspended from 2010.
Acting president and chief executive officer James Marcum said: “The decision to restructure the business through a Chapter 11 filing should provide us with the opportunity to strengthen our balance sheet, create a more efficient expense structure and ultimately position the company to compete more effectively.”
Planet Retail non-food research manager Greg Hodge said: “The writing has been on the wall for Circuit City for so long. If they could have made it to Christmas, they might have had a chance, but now it looks likely to fold. Quite apart from a tough general market, Circuit City has made some bad decisions.”
He added that since Blockbuster’s “lunatic” attempt to take over Circuit City earlier this year, “things have gone from bad to worse and Best Buy has gone in the opposite direction”. Blockbuster made a US$1.33 billion (£863 million) bid for the company in April, but walked away after conducting due diligence.
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