American Apparel had not made a profit since 2009.
The retailer said the restructuring will slash debt by $165 million (£108.4 million) to $135 million by eliminating $200 million in bonds in return for equity in the revamped company.
“By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy,” chief executive Paula Schneider said in a statement.
Some of American Apparel's adverts were banned by the Advertising Standards Authority in 2013 for being "overtly sexual" and "gratuitous", while another raised concerns about models being vulnerable.
