In this Nov. 17, 2004 file photo, Kmart chairman Edward Lampert listens during a news conference to announce the merger of Kmart and Sears in New York.

When Sears Holdings CEO Eddie Lampert merged Sears and Kmart in 2005, he believed that combining two fading giants would create a fortified competitor to stand up against new rivals like Walmart. But the deal was unable to stem the decline.

Over the past decade, Sears has had just one quarter of positive same-store sales. Unable to rely on the Sears' business to pay the bills, Lampert instead sold or spun off many of its most valuable stores and brands. A thinning cash flow has left little money to reinvest in the company itself, letting it become more irrelevant as new competitors like Amazon rise.

In effect, Lampert liquidated Sears outside of a formal bankruptcy proceeding. But now, as Sears is staring down the real threat of bankruptcy, those moves may come back to haunt it.

Sears is asking lenders for money to support it in bankruptcy, but it has little to offer them by way of collateral or reassurance. That dearth makes it harder to avoid full-out liquidation, though not impossible, whether that comes before or after filing for protection, people familiar with the ongoing talks say.