Blockbuster has filed for chapter 11 bankruptcy protection in the US in an effort to stem out of control debts and allow for restructuring.
None of Blockbusters' operations outside the US will be affected as they operate as legally separate business entities. Blockbuster UK was recently said to be in "very good shape" by its management, and saw an 18 per cent rise in profits during 2009.
A recapitalisation program is expected to cut Blockbuster's debt from nearly $1 billion (£638m) to a more manageable $100 million (£63.8m).
Normal business will continue across the company's portfolio in the US, with stores, online and kiosks remaining open and operational. There are currently no plans to close any of the 3000 stores in the US in the near future, said the company.
"After a careful and thorough analysis, we determined that the process announced today provides the optimal path for recapitalising our balance sheet and positioning Blockbuster for the future as we continue to transform our business model to meet the evolving preferences of our customer," said Blockbuster CEO Jim Keyes.
"The recapitalised 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."
The company has secured $125 million (£80m) from senior creditors to ensure obligations to customers, suppliers and employees are met during the recapitalisation process.