* Defaults on payment on $15.7 mln senior notes

* Says may be forced to seek protection under Chapter 11

* Says does not have funds to repay outstanding debt

* Shares fall 49 percent

Dec 15 - Image Entertainment Inc (DISK.O) said it may be forced to file for Chapter 11 bankruptcy protection as it defaulted on payment under convertible note and it was exploring strategic alternatives.

Shares of the company lost about half of their value in morning trade on Nasdaq.

The independent licensee and distributor of entertainment programming in North America said it had defaulted installment payment due on Dec. 14, as sought by the holder of its $15.7 million convertible notes.

The company does not currently have the funds, or access to the funds, necessary to repay all of its outstanding obligations to the Holder, Wachovia, Arvato and its other creditors, Image said in a statement.

The company, which had amended its 8.875 percent senior convertible note in October, and again in December, said it failed to pay the installment of $4 million and it does not expect to cure the defaults, which could adversely affect its liquidity and business.

Shares of Chatsworth, California-based Image were down 49 percent at 26 cents in late morning trade on Nasdaq. (Reporting by Abhiram Nandakumar in Bangalore; Editing by Gopakumar Warrier)