This error can occur because there isn't enough free space in the System Reserved or Recovery partitions. As a result, Windows can't create a volume shadow copy. Copying the boot files to volume C (using bcdboot) and marking it as active might fix the issue. But note that the Backup and Restore (Windows 7) tool and the System Image Backup tools are deprecated.
From Microsoft:
Windows 7 Backup and Restore deprecated - Compatibility Cookbook | Microsoft Learn
While there is no behavioral change to Backup and Restore, this function is being deprecated and will not be updated. It was rarely used and its functionality has been replaced by the new File History feature.
Deprecated features in the Windows client - What's new in Windows | Microsoft Learn
System Image Backup (SIB) Solution This feature is also known as the Backup and Restore (Windows 7) legacy control panel. For full-disk backup solutions, look for a third-party product from another software publisher. You can also use OneDrive to sync data files with Microsoft 365.
A third-party backup solution, such as Hasleo, AOMEI Backupper, EaseUS, or Macrium Reflect (not free of charge), is recommended for enhanced reliability.