Atlanta: Circuit City Stores Inc, the No. 2 US consumer electronics retailer, filed for bankruptcy on Monday just weeks before the start of the holiday shopping season, becoming the largest retailer to file for Chapter 11 since Kmart in 2002.

Circuit City fell victim to tighter credit terms from vendors, a dwindling cash position and decreased consumer spending amid a deepening economic crisis.

The filing comes one week after the 59-year-old retailer said it would close 155 US stores, or more than one-fifth of its retail base, and cut 17% of its US work force.

The retailer and 17 affiliates filed for protection from creditors in US bankruptcy court in Richmond, Virginia, where it is based. Its Canadian operations also filed for creditor protection in an Ontario court.

Analysts said there was now a possibility the company would close more US stores as it negotiates to exit costly leases in Chapter 11.

The company could face an uphill struggle to reorganize and emerge from bankruptcy since credit is tight and consumer spending has plummeted.

US home-goods retailer Linens ‘n Things tried to maintain operations by closing a portion of its stores after its May Chapter 11 filing, but finally liquidated altogether. Last week, smaller electronics chain Tweeter filed Chapter 11 and said it was holding store-closing sales.

Circuit City received court approval for a $1.1 billion debtor-in-possession revolving credit facility that would provide critical liquidity while it reorganizes.

The financing is provided by the lenders of Circuit City’s current asset-based credit facility and enables it to pay vendors and other business partners in the ordinary course for goods and services received after the filing.

Circuit City expressed hope it would be able to emerge from Chapter 11 in the first half of 2009.

In a filing, the company said 1,300 workers were laid off on 7 November. That day, the Richmond newspaper reported that hundreds of workers had been let go from company headquarters.