Advanta Corp., the small-business credit card issuer that cut off almost 1 million accounts as defaults soared, has filed for bankruptcy and said its undercapitalized banking unit may be turned over to regulators.

The lender sought court protection from creditors because Advanta won't be able to meet its obligations even with almost $100 million in cash and equivalents on hand, the Spring House, Pa., company said Sunday.

Advanta's bank is not covered by the filing but may be put into a receivership run by the Federal Deposit Insurance Corp., the company said.

"The economic debacle over the last two years devastated Advanta's small-business customers and Advanta itself," Chief Executive Dennis Alter said in a press release.

Alter is waiving his salary and bonus, the release said.

Advanta, the 15th-biggest card issuer by purchase volume last year, is the industry's biggest to fail since the recession began.

It said in August that it would dismiss about half its staff, leaving it with fewer than 200 people, after writeoffs more than doubled in June, to 56.95%.

That was five times the industry average as measured by Fitch Ratings for that month, when writeoffs at all credit card companies climbed to 10.79%.

Credit card losses typically track the U.S. unemployment rate, which climbed to 10.2% in October, the highest since 1983. Moody's Investors Service previously forecast writeoffs to peak at 12%-13% in mid-2010. Bank of America Corp., the second-biggest credit card issuer, said defaults were 14.25% in September, the most among the top six U.S. card lenders.

Advanta listed assets of $363 million and debts of $331 million in Chapter 11 documents filed in U.S. Bankruptcy Court in Wilmington, Del. Weil, Gotshal & Manges LLP and Richards, Layton & Finger PA are providing legal counsel.

The $330.1 million second-quarter loss was Advanta's fourth straight, and the firm said in August that its survival depended on developing a new business plan.

Recovery was complicated when regulators ordered its Advanta Bank Corp. unit to stop taking deposits, and the parent company's bankruptcy announcement said the FDIC rejected two plans to stave off collapse.

The banking unit's capital is below regulatory minimums, the press release said. Advanta "consciously decided not to fund the capital deficiency in order to preserve value for the senior retail noteholders and other Advanta Corp. stakeholders," the company said.

Advanta has about $138 million of senior retail investment notes outstanding, the release said. The banking unit held $2.55 billion in deposits as of June 30. Regulators have shut 120 banks this year, as of Friday, with failures running at the fastest pace since 1992.

The bankruptcy filing may help preserve assets to pay the debtholders, who likely will be compensated before common shareholders, Advanta spokesman Tom Becker said. The actual outcome "would be determined under a plan of reorganization," he said.

The 59-year-old company's class B shares, which sold for $34.07 in June 2007, dropped to 31 cents at Friday's close and to 9 cents in trading on Monday morning.

Advanta said it is still collecting on a $2.7 billion portfolio of managed receivables from 360,000 customers, and cardholders are expected to pay their bills.

The bankruptcy filing said new card charges were halted May 30. Analysts had predicted the cutoff would prompt some customers to stop paying, boosting Advanta's defaults.

Advanta froze its customers' credit card accounts in May; its focus on small business cards proved lucrative when the economy was healthy, because these customers tend to put much of their spending on cards.

However, when the economy fell, so did Advanta's business as a significant portion of its customers had high credit limits, substantial balances and declining sales. New businesses often fund much of their operations on credit cards.

The rising chargeoffs prompted analysts to question Advanta's entire business model, and though it warned in August that it needed to come up with a new one, the company never did develop an alternative strategy.

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