* Files Chapter 11, assets to be sold
* Downturn in economy, furniture sales led to filing
NEW YORK May 19 (Reuters) - Barcalounger Corp, which began making reclining chairs in World War II, has filed for bankruptcy protection and agreed to sell its assets, citing a sales downturn that left it unable to survive.
In a filing in the Wilmington, Delaware, bankruptcy court, Chief Restructuring Officer John Chapman said Barcalounger cannot generate enough profit to continue as a going concern because of "the dire turn in national furniture sales due, in large part, to the global economic downturn."
According to the Chapter 11 filing, Barcalounger has between $1 million and $10 million of assets, and between $10 million and $50 million of liabilities. One affiliate also filed for protection from creditors.
Barcalounger said an affiliate of Los Angeles-based investment firm Hancock Park Associates owns all its equity.
It said a Hancock affiliate, HPC3 Furniture Holdings, has agreed to bid $1.5 million for the company's assets under a "stalking horse agreement."
If the bankruptcy court approves the sale, Hancock will be deemed to have waived a $32.44 million claim against the debtors, Barcalounger said.
Barcalounger began making recliners in 1940, according to its website, and has offices in Martinsville, Virginia.
The case is In re: Barcalounger Corp et al, U.S. Bankruptcy Court, District of Delaware, No. 10-11637. (Reporting by Jonathan Stempel; Editing by Gary Hill)