Edward Neiger, bankruptcy attorney and founder of Neiger LLP, says the probability of Blockbuster filing for bankruptcy is about 75%. He expects the company is currently in frantic talks with their debt holders and if they don't agree on a resolution Blockbuster won't have any other choice. And even if the two parties do renegotiate the term of its debt agreement, there is still a chance Blockbuster could file Chapter 11.

Neiger expects a bankruptcy filing to come in the second or third quarter.

Blockbuster will likely use the filing as a platform to renegotiate terms with its existing senior debt holders, reject or renegotiate terms with a large number of its store landlords and liquidate non-core assets," says Kenneth Latz, director at Conway MacKenzie, a financial and operational consulting firm. "I would imagine that the holders of the existing subordinated notes will ultimately end up owning the majority of the business."

So if bankruptcy is imminent, what then will become of Blockbuster? Well, that all depends on the terms of the bankruptcy.

Latz does not think a pre-packaged bankruptcy is likely or there is any possiblity of settling outside of court. "It would be unwise for Blockbuster to just deal with the debt holders and not address the vast store overhead or their operational issues," he says.

If they were to do this, it is likely Blockbuster will be staring at Chapter 22 down the road, Latz says, which often means liquidation.

-- Reported by Jeanine Poggi in New York.

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