Anna's Linens files for Chapter 11 bankruptcy protection and is negotiating a sale

Home fashions retailer Anna's Linens Inc. filed for Chapter 11 bankruptcy protection on Sunday and is negotiating a sale with DW Partners LP in New York.

The asset management firm would become "the stalking horse" bidder, and make the initial bid in a bankruptcy auction sale. In a filing, the company said it had up to $500 million in liabilities and up to $100 million in assets.

Meanwhile, the company said it negotiated a debtor in possession financing arrangement with Salus Capital. That financing is expected to provide the company with funds to pay for daily operations.

The Costa Mesa, California-based company operates 268 company stores throughout 19 states and it employs over 2,500 employees.