The Toronto-based company filed for Chapter 11 in a Delaware court. According to a Canadian newspaper, the company is facing $107 million in interest on debts.
The telecom giant will likely be divided and sold to rival corporations.
In a newspaper report published Wednesday, the Canadian government pledged to help Nortel emerge from bankruptcy protection.
A Canadian government agency has agreed to provide up to $24 million in short-term financing through an existing bonding facility.
Nortel's board of directors met Tuesday night to discuss its financial crisis. The company, which manufactures telecomunications hardware, said it failed to find buyers for a number of divisions that were put up for sale in September.
As of this morning, Nortel stock was selling for 7 cents on the New York Stock Exchange.