American Home Mortgage Corp (AHM), the tenth largest home loan lender in the US, has been forced to file for Chapter 11 bankruptcy protection after falling foul of the country's worsening sub-prime mortgage market.

AHM, which last week reduced its staff from 7,000 to just 750 employees, filed for Chapter 11 today at a bankruptcy court in Delaware. The move will allow AHM to carry on running the business for a finite time without dealing with or paying creditors.

Deutsche Bank and JP Morgan Chase are listed as two of its largest creditors.

AHM did not immediately return calls seeking comment.

The size of AHM liabilities has yet to emerge. During the three months to March 31 2007, AHM's assets totalled $20.5 billion (£10.1 billion), just covering its $19.3 billion liabilities. AHM specialises in near-prime mortgages, which are less risky than the sub-prime home loans that are granted to people with poor credit history.

However, growing numbers of home owners have been defaulting on their payments in recent months, prompting mortgage providers to write down large tranches of debt. The company has stopped lending money to customers and last week lost four of its licences to provide funds to borrowers, including one based in New York.

AHM's decision arrives just hours after Bear Stearns ousted Warren Spector, its co-president and co-chief operating officer, when the US investment bank was pegged as having a negative outlook by Standard & Poor's, the rating agency, due to concerns over the impact of the collapsing sub-prime mortgage market.

In June, Bear Stearns poured $1.6 billion into a fund to plug a gap made by the disintegrating home loan industry, which left two of its investment funds virtually worthless.

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