Portland-based developer Legend Homes filed for Chapter 11 bankruptcy Tuesday in U.S. District Court in Eugene, the latest fallout after lender Key Bank's refusal to extend the firm more credit in May.

As a result of Key Bank's decision, Legend was unable to pay about $1 million in subcontractor bills last month.

"This is not an effort to avoid responsibility," said Legend Homes President Jim Chapman. "It is, in fact, intended to resolve issues from current market and industry challenges, meet our obligations, and protect our buyers who are still under warranty or in the contract stage."

Chapter 11 bankruptcy allows a company to reorganize under the supervision of the courts in an attempt to stay in business. Chapter 7 bankruptcy, by comparison, shuts down a business and calls for the liquidation of assets.

Company management hopes the bankruptcy filing will protect its building operations from the potential for other lenders to call in debt on the company's land holdings.

Legend Homes traces its recent downturn to overstretching in Riverside, Calif., a region that has become one of the nation's hardest-hit in the housing credit crunch.

In recent years, Legend has become a major builder of housing developments in Corvallis. Legend Homes'Corvallis projects - Stoneybrook and Willamette Landing - have largely been on hold since last year, when the housing market nationwide began to crumble.

Mike Goodrich, vice president of operations for Legend and manager of the company's Corvallis operations, said the company is solid in Corvallis but was made vulnerable by its land holdings, particularly outside of Oregon

The local subdivisions, both offering new homes priced between $250,000 and $400,000, had largely been completed prior to troubles in the housing market, though a handful of finished houses remain in Stoney-brook.

"The nice thing in Corvallis is that we stopped a while back and there isn't a whole load of construction debt," Goodrich said.

The company's reorganization plan calls for it to emerge from bankruptcy by the end of the year.

Matt Neznanski can be reached at 758-9518 or matt.neznanski@lee.net