Video Rental Chain Movie Gallery Files for Bankruptcy

According to Reuters, Movie Gallery, the second-biggest video rental chain after Blockbuster, has filed a reorganization plan in bankruptcy court, and said it hoped to emerge from Chapter 11 next year.Two months ago, the company filed for a prenegotiated bankruptcy, similar to the plan filed for now.After the company emerges from bankruptcy, it expects to be "well positioned to operate profitably," Joe Malugen, Movie Gallery's chief executive, said in a statement on Saturday.Because of intense competition from online rivals like Netflix as well as cable companies, Movie Gallery is struggling to cut costs.Before filing for bankruptcy-court protection, the company struggled under a debt load of more than $1 billion after taking over a larger competitor, Hollywood Video.

Existing shareholders will receive nothing under the plan.

The company said in a statement that under the plan, investors in about $400 million of the company's senior notes, unsecured claims and second-lien debt would receive equity in the new company.

The company said it plans to ask the U.S. Bankruptcy Court for the Eastern District of Virginia to confirm the plan early in the second quarter of 2008, and hopes to emerge from bankruptcy soon after that.