Borders Group Inc filed for bankruptcy protection and said it would close about one-third of its bookstores, after years of shriveling sales that made it impossible to manage its crushing debt load.

The long-expected Chapter 11 filing will give the second-largest U.S. bookstore chain a chance to try to fix its finances and overhaul its business in an attempt to survive the growing popularity of online bookbuying and digital formats.

But the chain still faces questions about its longer term survival, in the face of competition from larger rival Barnes & Noble Inc, discounters such as Wal-Mart Stores Inc and Costco Wholesale Corp, as well as web retailer Amazon.com and Apple Inc in electronic books.

Borders President Mike Edward said his chain does not have the capital resources it needs to be a viable competitor. He said the bankruptcy was essential to restructure its debt and still operate.

Borders had liabilities of $1.29 billion and assets of $1.28 billion as of December 25, according to documents filed on Wednesday with the U.S. Bankruptcy Court in Manhattan.

The pioneer of book superstores plans to abandon some of its highest profile locations, closing a store in its hometown of Ann Arbor, Michigan, as well as one on Manhattan's Park Avenue.

All 200 closings will be superstores, and about 6,000 jobs will be affected, the company said. It has the option of closing up to 275 in all, according to court documents. It said the stores it wants to close lose a combined $2 million a week. The closings will start by Saturday. The company said it will honor gift cards.

Borders operates about 500 superstores as well as more than 100 smaller Waldenbooks locations.

The largest U.S. bookstore chain, Barnes & Noble, has had success with its Nook e-reader and online store, allowing it to stay in contention with online book pioneer Amazon.com. Borders has lagged well behind.

Borders has not created a value proposition to be a competitor to Barnes & Noble and the e-commerce challenge, said Anthony Karabus, a retail turnaround specialist with Karabus Retail Management Consultants.

The chain's difficulties have been worsened by the revolving door in its executive suite in recent years. The company has had four chief executive officers in the past three years and two chief financial officers in 2010.

Sales declined by double-digit percentage rates in 2008, 2009 and in the first three fiscal quarters of 2010.

SMALL BOOST FOR B&N?

The bankruptcy could help sales of traditional books at Barnes & Noble, at least temporarily, analysts said. Credit Suisse estimates that 70 percent of Borders stores are near a Barnes & Noble store. Barnes & Noble operates 717 superstores.

But analysts say Barnes & Noble needs to focus on its e-book strategy, through its Nook e-reader.

Barnes & Noble shouldn't be distracted by Borders' bankruptcy, said Morningstar analyst Pete Wahlstrom. If they let their foot off the gas even for a second, Apple and Amazon will be ready to take the spoils.

In bankruptcy, stockholders are typically wiped out. Borders' top shareholder is CEO Bennett Lebow, who injected $25 million of his own money last May to try to shore up the bookseller.

Its second-largest shareholder is hedge fund Pershing Square, whose manager, William Ackman, has said Borders was his worst investment ever.

General Electric Co's GE Capital will provide Borders with $505 million in debtor-in-possession financing to allow it to continue operating, contingent on court approval.

The company's largest unsecured creditors include major publishers that provide the books it sells. Borders owes Pearson Plc's Penguin $41.2 million, Hachette Book Group USA $36.9 million, and CBS Inc's Simon & Schuster $33.8 million, according to court documents.

The New York Stock Exchange suspended trading in Borders shares on Wednesday. Barnes & Noble shares rose 0.2 percent.

The case is In re: Borders Group Inc, U.S. Bankruptcy Court, Southern District of New York, No: 11-10614.

(Reporting by Phil Wahba and Tom Hals; additional reporting by Santosh Nadgir; Editing by Derek Caney and Gerald E. McCormick)