Blockbuster, the struggling video rental giant, filed for bankruptcy protection on Wednesday, seeking to shed its onerous debt and remake itself to compete against nimbler rivals.

The long-awaited filing, made in federal bankruptcy court in Manhattan, will wipe out the bulk of Blockbuster’s nearly $1 billion debt, while handing over a huge equity stake to senior bondholders led by the investor Carl C. Icahn. Junior bondholders are expected to be wiped out, the company disclosed in a court filing.

The company said it expected its daily operations and video stores to continue without interruption. The company, however, plans to close a sizable number of those stores as part of its reorganization.

Over the last 25 years, Blockbuster grew to become the dominant force in the movie rental market, only to slip significantly as consumers increasingly flocked to alternatives.

Among the company’s most successful competitors is Netflix, which lets subscribers receive movies through the mail or stream them online. Netflix’s shares rose Thursday to a record high of $163.72 a share before closing the day up 2.26 percent to $160.47.

Coinstar’s RedBox, which places low-cost kiosks in stores, is also aggressively competing in the movie rental business. Other rising rivals include Apple, whose iTunes service sells and rents films and television shows, and cable TV providers that have their own on-demand services.

Blockbuster has been working to expand its mail- and Internet-based offerings. Last year, it began its own kiosk business, Blockbuster Express, through a partnership with NCR.

But the company still depends heavily on its more than 3,300 stores in the United States, which carry higher revenue margins but have had sharp declines in business.

“It is going to be a very small shell of its current state,” Edward Woo, an analyst with Wedbush Morgan Securities in Los Angeles, said on Thursday.

One of Blockbuster’s smaller rivals, Movie Gallery, filed for bankruptcy in February, hoping to reorganize — only to announce months later that it would liquidate.

This year, Blockbuster began discussions with its senior bondholders about reorganizing its debt to try to avoid Chapter 11. It also held talks with two strategic companies about a potential investment in the company, but the discussions ended as it became clear that any deal would fail to erase enough debt, Jeffery Stegenga, Blockbuster’s chief restructuring officer, wrote in a court filing.

This summer, its stock was suspended from trading on the New York Stock Exchange, and it moved to the over-the-counter market.

Blockbuster’s senior lenders have agreed to lend the company $125 million to keep it operating during bankruptcy.

The company says it still holds some advantages over its competitors, including offering rentals of many movies as soon as they are released on video while rivals must wait 28 days. It has secured the support of key movie studios like 20th Century Fox, which is also its largest trade creditor with a $21.6 million dollar claim.

“Our longstanding relationship with Blockbuster has been mutually beneficial and profitable, and will continue to be so,” Simon Swart, an executive vice president for 20th Century Fox Home Entertainment, said in a statement.