It gives Sears a chance to survive, which appeared to be slipping way heading into the hearing. Under the plan the remaining Sears and Kmart stores would close, meaning about 68,000 employees would lose their jobs.
One of America's most iconic businesses, which has been in business for over 125 years and still employees 68,000 people, is on the verge of liquidation after an eleventh-hour, $4.4 billion takeover bid failed to satisfy advisers to the company, which hasn't turned a profit in almost a decade.
Sears on Tuesday had planned to tell the bankruptcy court it had rejected Lampert's $4.4 billion offer to buy the retailer, after it fell short of covering its bankruptcy expenses. Sears stock is trading at 22 cents a share on the New York Stock Exchange.
While current Sears shareholders have lost almost all their investment and creditors that include the US government are owed $11 billion, Lampert has pocketed nearly $1.4 billion to date from his investment in the retailer, calculated Institutional Investor in a recent story.
Sears Chairman Edward Lampert's push to save the bankrupt retailer still has a shot to succeed.
Mr Lampert's hedge fund originally submitted a last-minute bid for Sears valued at $4.4bn (£3.5bn) ahead of the December 28 deadline, to stop the retailer from being liquidated. A liquidation would likely shut hundreds of Sears and Kmart stores, potentially putting more than 50,000 people out of work.
The 11th hour negotiation is yet another twist in the rocky journey of Sears whose fate has been hanging in the wind, particularly since it filed for Chapter 11 bankruptcy on October 15. Even as Sears' brick and mortar competitors established effective e-commerce operations Sears - a pioneer in catalog sales - failed to do so. The deal would keep 425 of the stores open.
Lawyers for Lampert and his hedge fund, ESL Investments, were pressing for more time to sweeten his offer. The once-dominant retailer has about 500 stores still in operation.