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Beleaguered No. 2 electronics retailer and 17 affiliates file for protection after its sales erode in the economic downturn.

Last Updated: November 10, 2008: 8:50 AM ET

NEW YORK (CNNMoney.com) -- Circuit City Stores Inc., the No. 2 electronics seller after Best Buy, filed for bankruptcy protection Monday, thus becoming the latest retailer hurt by a worsening economic downturn.

According to the company's Chapter 11 filing with the U.S. bankruptcy court in Richmond, Va., Circuit City (CC, Fortune 500), which currently has 566 operating stores in the United States, will continue to do business and pay its workers while it restructures debt and its business operations.

Circuit City said it decided to file for bankruptcy at this time to ensure that it would have "adequate merchandise flow to stores during the important holiday season."

The November-December holiday shopping months are crucial to retailers since the two months can account for 50% or more of merchants' annual profits and sales.

Just last week the Richmond-based company announced that it would close another 150 stores and cut about 17% of its domestic workforce as it continues to face eroding sales at its stores.

The company said it has negotiated a commitment for a $1.1 billion "debtor-in-possession" (DIP) revolving credit facility to supplement its working capital. The company said the DIP credit will replace the company's $1.3 billion asset-based credit facility provided by its lenders.

The retailer said the credit facility will give it immediate liquidity while it works to reorganize the business and enable it to pay its vendors and its roughly more than 40,000 employees.

"We recently have taken intensive measures to overcome our deteriorating liquidity position," James Marcum, Circuit City's acting president and chief executive officer, said in a statement.

"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," he said.

Circuit City said its warranty and service plans sold by the company, as well as its co-branded credit cards, will not be impacted by the company's Chapter 11 filing.