LYNCHBURG, OCT. 21 -- Craddock-Terry Shoe Corp., which recently put about 950 people out of work by closing five southern Virginia plants, filed today for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.

A bankruptcy petition filed late in the afternoon listed assets of $44.2 million and liabilities of $48.9 million as of Aug. 29. Craddock-Terry said it owed money to more than 1,000 creditors, but wanted to continue operating under protection from the court.

Bankruptcy court officials in Lynchburg said the U.S. Trustee's Office in Roanoke will choose creditors to negotiate a reorganization plan with Craddock-Terry.

Alan Kolod, of the New York law firm of Summit, Rovins, Feldesman, which represents Craddock-Terry, declined before today's filing to comment on the source of the company's financial problems.

He said, however, that under reorganization the company wants to keep its profitable Hill Brothers mail-order division.

"Hill Brothers we want to keep," Kolod said. "It would be premature to commit to anything else. It will depend on the circumstances. I can specifically tell you right now it depends on what we aren't going to need."

Craddock-Terry officials did not immediately return phone calls.

Meanwhile, Lynchburg television station WSET reported that Aetna Life & Casualty Co. will drop the shoe corporation's employe insurance on Nov. 1. Jerry Bostwick, Craddock-Terry's chief financial officer and treasurer, told the station the company hopes to find a new insurer by then.

He said Aetna's move was not spurred by Craddock-Terry's financial problems, and that company officials had been reviewing their insurance policy since the April 1986 purchase of Craddock-Terry by HH Holdings, an investment group.

Aetna was one of the creditors listed in the bankruptcy petition, but the amount it was owed was not listed.

The bankruptcy plans were discussed on Monday in New York, where Craddock-Terry officials met with about 40 creditors. A lawyer for a creditors committee, Joseph Braunstein, said the creditors were pleased with the reorganization plans.

But Braunstein said the creditors want a better explanation for Craddock-Terry's poor financial health.

"There were losses, but nothing attributed to what was the source of the losses," Braunstein said.