Chrysler Could Exit Bankruptcy by Next Week: Source

Chrysler could exit Chapter 11 bankruptcy protection soon, perhaps as early as next week, according a person familiar with discussions between the federal government and the auto maker.

Chrysler Bankruptcy

Phil Lebeau
CNBC Auto and Airline Industry Reporter

"We're pretty close to the end with Chrysler," the source said.

When it emerges from bankruptcy, Chrysler will be run by Italian auto maker Fiat, which will have a 20 percent stake in the American company. Fiat CEO Sergio Marchionne will also serve as CEO of Chrysler.

Since entering bankruptcy protection on April 30, Chrysler has gone through "quick rinse" that has stripped the company of its liabilities, 879 dealerships, and ultimately thousands of workers who will not be part of the new Chrysler.

• What Happens In Bankruptcy

The new company will be leaner, and focus more on building smaller, fuel efficient cars. Those types of cars are a specialty of Fiat, which promised the Treasury Department it would bring billions in small car technology to Chrysler.

General Motors, meanwhile, moved closer to a bankruptcy filing as bondholders shunned a proposed debt-to-equity offering. But the auto maker did reach an agreement with the UAW union on cost-cutting concessions.

Meanwhile, a US Federal Judge denied Tuesday a request by a dissenting lender group to delay Chrysler's sale hearing and remove the bankruptcy case to district court. (Click here to see Indiana's state treasurer explain his opposition to the Chrysler plan).

After a federal court hearing in Manhattan Tuesday, U.S. District Judge Thomas Griesa said he would deny a motion by a group of Indiana pension funds that claim the government did not have the authority to provide funds to Chrysler for its proposed sale.

Meanwhile, Chrysler heads to court Wednesday to ask a bankruptcy judge for permission to sell the bulk of its assets to the group headed by Fiat.

Attorneys for Chrysler maintain that the deal with Fiat Group SpA is the company's only hope to avoid being sold off piece by piece, but the agreement remains controversial with more than 100 objections to the sale filed by the automaker's dealers, bondholders, former employees and others.

However, if the deal doesn't close by June 15, Fiat could back out.

The funds had asked the judge to prevent Chrysler's scheduled sale hearing in bankruptcy court Wednesday from going forward, but the Judge also denied that request.

Judge Griesa said he would explain his decision in a formal opinion later Tuesday and that once the bankruptcy judge rules on Chrysler's sale, the objecting parties should have a "fair" opportunity to appeal that decision.

—Reuters contributed to this report.

© 2009 CNBC.com