The company's decision is believed to be prompted by a rapidly worsening credit crunch as part of a weaker US economy, which has put pressure on Circuit City to reduce its more than $2.3 billion debt. Some companies have insisted on upfront payment for goods delivered to the stores rather than allowing the company to put items on credit. Circuit City has just $3.4 billion in assets.

Apart from broader business decisions, the company's bankruptcy is believed prompted by the rapid expansion of Best Buy, which targets the same general electronics audience and regularly strikes exclusive deals for special products such as the iPhone 3G, which is normally only available through either Apple or AT&T shops. Best Buy has said it may occupy the spaces of stores like Circuit City or its similarly troubled equivalent CompUSA to expand its reach in certain areas.