Chrysler is on the brink of filing for Chapter 11 today as reports in the US suggest that debt negotiations with Chrysler's lenders have stalled.

The Wall Street Journal reported that talks between the Treasury Department and lenders aimed at keeping Chrysler out of bankruptcy broke down Wednesday.

The report cited sources familiar with the discussions and added that administration officials say all the pieces are in place to get the company through the court quickly, perhaps in a matter of weeks.

The WSJ report said that talks with Chrysler's lenders broke down after the Obama administration's automotive task force worked into the evening to persuade several hedge funds and other lenders to accept a deal to reduce Chrysler's debt.

The Treasury boosted its most recent offer to lenders on Wednesday by US$250m to US$2.25bn in cash for the banks and hedge funds to write off US$6.9bn in Chrysler debt, people familiar with the matter told the newspaper.

JP Morgan Chase, which leads the creditor group as Chrysler's largest lender, gave the other 45 banks and hedge funds 90 minutes Wednesday to vote on the deal. A large number of the funds voted no and refused to budge, paving the way for an all but unavoidable trip to bankruptcy court, said people close to the talks.

The report also suggested that the process could pave the way for Fiat to take over Chrysler, as a filing would make it easier for Fiat to rationalise Chrysler's dealer network and ignore dealer franchise agreements.

Chrysler's UAW membership passed a related negotiated deal with the car company late Wednesday.

Fiat is expected to signal its approval for an alliance with Chrysler later today, the WSJ added.

The Washington Post reported that a detailed Chrysler bankruptcy plan is ready to go and that Fiat management would be brought in immediately to work through the process.

In comments made yesterday, President Obama expressed optimism on the future for Chrysler and again raised the possibility of a 'quick type of bankruptcy'.

"I am actually very hopeful, more hopeful than I was 30 days ago, that we can see a resolution that maintains a viable Chrysler auto company," he said. 

 "Even if they [Chrysler] ended up going through some sort of bankruptcy, it would be a quick type of bankruptcy and they could continue operating on a merger on the other side in a much stronger position," Obama said. 

Some analysts believe that an eleventh hour deal with Chrysler's recalcitrant lenders that avoids a Chapter 11 filing is still possible and that the talk of Chapter 11 is designed to put extra pressure on them.

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