NEW YORK (CNN/Money) - Conseco Inc., the deeply indebted insurer and finance company facing a federal investigation of its accounting practices, filed Wednesday for protection from creditors in the third-biggest bankruptcy in U.S. history.

Industry analysts had long expected a Chapter 11 filing by Conseco after the company's aggressive acquisition spree during the 1990s. The filing came after months of negotiations between Conseco and creditors and bondholders once it missed some payments due earlier this year.

Conseco had $61.4 billion in assets at year-end, making its bankruptcy No. 3 behind WorldCom Inc. and Enron Corp.

Although the bankruptcy filing was unsurprising given Conseco's recent woes, it marked a dramatic downfall for a company whose stock was once a favorite on Wall Street. From 1988 to 1998, the company's stock averaged a total return of 47 percent a year, and Conseco shares traded as high as $58. Today, the stock trades at less than a nickel a share.

The bankruptcy filings apply to Conseco Inc., the parent company, and Conseco Finance, its troubled loan operation, which has $38 billion in managed assets. The company's insurance division, which is under close scrutiny of state insurance regulators, is not affected by the filing.

A company spokeswoman said Wednesday that customers with insurance policies and loans through Conseco would not be affected by the filings, but that any concerned policyholders should call the customer service numbers on their statements.

Bankruptcy hearings started Wednesday morning before Judge Carol Doyle in Chicago, where Conseco filed for Chapter 11 protection Tuesday night. The company has hired bankruptcy lawyer James Sprayregen of Kirkland & Ellis, the same lawyer who is representing UAL Corp. (UAL: Research, Estimates), the parent of United Airlines, which filed for bankruptcy Dec. 9.

Conseco, based in Carmel, Ind., piled up massive debts in a 1990s acquisition binge under flamboyant founder and Chief Executive Stephen Hilbert, capped by what turned out to be its disastrous purchase of loan firm Green Tree Financial, now called Conseco Finance, in 1998.

That deal exposed Conseco to a mountain of bad loans -- largely on mobile homes and manufactured housing -- which worsened as the economy turned sour.

In the late 1990s Conseco piled on more debt and made problems for itself by aggressively accounting for gains from securitizing its loans. It later abandoned that practice, under pressure from investors, which led to a restatement of several years' worth of profits.

That shook Wall Street's faith in Conseco and eventually prompted the firm to oust Hilbert -- a one-time encyclopedia salesman who parlayed his wealth into horse racing assets and philanthropy -- in 2000.

Conseco at a glance     Employment  14,256  Total assets  $61.4 billion   2001 revenue  $8 billion, No. 239 on 2002 Fortune 500 Headquarters  Carmel, Indiana  Founded  1979  (Source: AP)

Gary Wendt, former boss of General Electric (GE: Research, Estimates)'s GE Capital unit, was brought in 2-1/2 years ago to rescue the firm, picking up a $45 million signing bonus, but he quit as chief executive in October, admitting his turnaround plan had failed.

By then, the firm was laboring under more than $6 billion in debt, sluggish profits from its insurance and loan operations, and huge losses in its investment portfolio.

Conseco's stock was delisted from the New York Stock Exchange last summer, and its shares last sold for less than 4 cents each in over-the-counter trading Monday. Conseco bonds due in 2004 last traded around 7 cents on the dollar.

As part of the restructuring effort, Conseco said it would sell Conseco Finance, the source of much of its problems, to a group of investors in an effort to raise cash and pay off debt. It did not say how much it would receive for the sale. The unit was originally put up for sale by Hilbert in 2000.

The buyer, CFN Investment Holdings -- a joint venture between Fortress Investment Group, J.C. Flowers & Co. and Cerberus Capital Management -- will buy the loan unit's assets and operations at a price equal to the unit's secured debt when the deal closes, Conseco said.

"We believe we have achieved a major step toward what we set out to do in August [when talks with creditors began]," Conseco Chief Executive William Shea said in a statement.

No further details of the bankruptcy were available in filings submitted to the U.S. Bankruptcy Court in Illinois.  

-- from staff and wire reports