The second largest U.S. bookstore chain Borders Group Inc. (NYSE: BGP) filed for Chapter 11 bankruptcy protection as its book sales started sinking in 2008, 2009, and in each quarter of 2010 even after management changes, job cuts and debt restructuring.

After the news, Borders stock fell 25.57 percent to $0.170 in the pre-market trading.

The company's failure to accumulate significant online business and its inadequacy in the growing digital books market have made Borders difficult to compete with larger rival Barnes & Noble Inc. (BKS), online retailer Inc. (AMZN) and Wal-Mart Stores Inc. (WMT).

In its filing with the U.S. Bankruptcy Court in Manhattan, the company listed liabilities of $1.29 billion and assets of $1.28 billion as of December 25. The Chapter 11 petition for relief was filed in the U.S. Bankruptcy Court, Southern District of New York.

In this regard, operating under Chapter 11, Borders has received commitments for $505 million in Debtor-in-Possession (DIP) financing led by GE Capital, Restructuring Finance, Borders Group President Mike Edwards said.

This financing should enable Borders to meet its obligations going forward so that our stores continue to be competitive for customers in terms of goods, services and the shopping experience, said Mike Edwards.

The Ann Arbor, Michigan-based Borders said it intends to undertake a strategic store reduction program to facilitate reorganization and its repositioning. Borders has identified certain underperforming stores, which are expected to close in the next several weeks.

At the same time, Borders said a major strength of the company is its national presence and its extensive network of balance stores as well as, which will continue to run in normal course.

The company said it is serving customers in the normal course, including honoring its Borders Rewards program, gift cards and other customer programs. The company also projects to make employee payroll and continue its benefits programs for its employees.

In light of the ongoing impact of the difficult economy of the past few years, and the rapidly changing retailing environment for books and related products, it is essential that Borders restructure itself to reposition its business to be viable and successful over the long term, Borders said in a statement.

The 40-year-old chain, whose market value shrunk by more than $3 billion since 1998, racked up losses by failing to adapt to shifts in how consumers shop, according to the Bloomberg.

Borders’s first e-commerce site debuted in 2008, more than a decade after revolutionized publishing with online sales. The world’s largest online retailer beat it again by moving into digital books with the Kindle reader in 2007, a market Borders entered in July.

“Instead of leading and being innovative, they were certainly a follower,” Standard & Poor’s analyst Michael Souers told Bloomberg.