The move comes as the movie rental company is facing a surge of new competition from digital content providers that stream movies and TV shows over the Internet to PCs and mobile devices or directly to set-top boxes.
Blockbuster said the bankruptcy plan, forged in part by senior debt holder Carl Icahn, will allow it to reduce its debt from the current level of nearly $1 billion to $100 million or less. The deal also provides Blockbuster with $125 million in debtor-in-possession financing.
Blockbuster is also said to be reviewing a plan that could see it reduce the number of stores it operates in the U.S. from the current 3,000 to a significant smaller number. The company said all stores will remain open for the time being.
"After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalizing our balance sheet and positioning Blockbuster for the future as we continue to transform our business to meet the evolving preferences of our customers," said Blockbuster CEO Jim Keyes, in a statement.
"The recapitalized Blockbuster will move forward better able to leverage its strong strategic position, including a well-established brand name, an exceptional library of more than 125,000 titles, and our position as the only operator that provides access across multiple delivery channels—stores, kiosks, by-mail, and digital," said Keyes.
It is the latter category that Blockbuster is likely to focus on most going forward, as it's been criticized for being slow to embrace new technologies.
The company has lost market share in recent years in the face of streaming content offerings from the likes of Netflix and Hulu. The company has a digital distribution agreement with Tivo, among others, but that service has been knocked for its per-movie pricing and limited selection of titles, particularly when it comes to HD content.
Blockbuster said it plans to continue honoring all current promotions and coupons during the filing period.