Suppliers to the chain have started witholding deliveries over non-payment and the company could possibly lose the sole distribution rights to one of its most popular brands, Martha Stewart Everyday.
Chapter 11 filing will give Kmart protection from the bankruptcy court and the chance to restructure its £3.3bn debt, as well as shutting down some underperforming stores to cut costs.
Kmart has been floundering for some time, seeing sales fall while rival discount retailer Wal-Mart steals its market share. It has also been taken over in terms of sales by Target, a slightly more upmarket discount retailer.
Shares in the company have fallen from a high of $13.55 last August to a low of $1.26 at the end of last week. However, the shares rallied yesterday, closing at $1.74, up 11.5% on the opening price.
In a failed attempt to win a reprieve from creditors, Kmart fired president Mark Schwartz and installed James Adamson, known as a crisis manager, as chairman.
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