Backup and restore does not work because it points to my external J drive where my last backup was taken. However, Windows has assigned my external drive to K and is treating as one of my fixed drives whenever connected.
You can change the drive letter of the external drive to match the drive letter in the Backup menu. In order to do this, go to Control Panel ---> Administrative Tools ---> Computer management ---> Storage, Disk Management. Select the drive you want to change the drive letter, and proceed.
Another method is to keep the drive letter that Win7 has assigned to the external drive and then to open Control Panel ---> Backup & Restore, and select (or change to) the correct drive letter.