Updated from 12:27 a.m. EDT

Talks between the Treasury Department and lenders to keeping U.S. automaker Chrysler out of bankruptcy broke down late Wednesday, making it all but certain the company will file for Chapter 11 protection Thursday, the Wall Street Journal reports, citing people familiar with the discussions.

All the pieces are in place to get Chrysler through the court quickly, perhaps in a matter of weeks, say administration officials.

The talks with Chrysler's lenders broke down after the Obama administration's automotive task force worked to persuade several hedge funds and other lenders to accept a deal to reduce Chrysler's debt, said people involved in the talks, the Journal reports.

According to people familiar with the matter, the Treasury raised its most recent offer to lenders on Wednesday by $250 million to $2.25 billion in cash for the banks and hedge funds to forgive $6.9 billion in Chrysler debt.

The Journal reports JPMorgan Chase ( JPM), Chrysler's largest lender, gave the other 45 banks and hedge funds 90 minutes Wednesday evening to vote on the deal. A large number of the funds voted no and wouldn't budge, paving the way for an all but unavoidable trip to bankruptcy court, said people close to the talks.

The bankruptcy process should pave the way for Italy's Fiat to take over the American automaker, according to the Journal.

The U.S. government in March rejected Chrysler's restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat. The company, which has borrowed $4 billion from the federal government and needs billions more, faces a Thursday night deadline to cut labor costs, slash debt and take on a partner if it wants more aid.

President Barack Obama said Wednesday night while the lender talks were still ongoing that he was "very hopeful" that deals can be worked out to keep Chrysler a viable automaker, and more hopeful than he was a month ago that the company will stay in business.

On Sunday, the Canadian Auto Workers ratified concessions to the automaker, and the United Auto Workers in the U.S. reached a tentative cost-cutting deal that members overwhelmingly ratified Wednesday evening.

The UAW agreement, which will take effect May 4, meets Treasury requirements for continued loans to Chrysler, and includes commitments from Fiat to manufacture a new small car in one of Chrysler's U.S. facilities and to share key technology with Chrysler.
Copyright 2008 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. AP contributed to this report.

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