Chrysler bankruptcy readied

The Treasury Department is preparing a Chapter 11 filing that could come as soon as next week, the NYT is reporting.

The Treasury has an agreement in principle with the United Automobile Workers union, whose members' pensions and retiree health care benefits would be protected as a condition of the bankruptcy filing, said these people, who asked for anonymity because they were not authorized to discuss the case. Moreover, Fiat of Italy would complete its alliance with Chrysler while the company is under bankruptcy protection.

Still unclear, according to the Times, is what happens to Chrysler's lenders, who hold $6.9 billion in company debt. The government's proposed deal would give them 22 cents on the dollar, which is quite a distance from what the lenders want.

If no agreement is reached, a nasty legal fight could emerge in bankruptcy. The creditors' claims are backed by virtually all of the company's collateral, including plants, brands and equipment, and the lenders will argue that they have first claim on those assets.