June 7 (Bloomberg) -- Chrysler LLC creditors asked a U.S. Supreme Court justice to block the carmaker from selling its assets as early as tomorrow to a group led by Italy’s Fiat SpA.

Indiana pension funds that lent Chrysler money said in papers filed late yesterday that they will seek a Supreme Court review of a ruling allowing the sale. The funds asked Justice Ruth Bader Ginsburg for an order blocking the transfer until the high court decides whether to hear the funds’ appeal.

“Absent a stay, the sale will close on Monday, June 8, 2009,” the funds said in their court papers, filed in Washington. They said they would suffer “irreparable harm” should the sale go forward.

A federal appeals court in Manhattan on June 5 upheld a bankruptcy judge’s ruling letting the sale proceed, while ordering the decision put on hold until 4 p.m. tomorrow to let the creditors appeal to the Supreme Court. If the justices deny a stay sooner than that, Chrysler can complete the sale immediately.

Ginsburg, who handles emergency matters from the New York- based court, can either act on her own or refer the matter to the full nine-member court. The votes of at least four of the nine justices are required for the Supreme Court to consider the appeal.

The Indiana funds, holding $42.5 million of $6.9 billion in Chrysler secured loans, contend the Fiat deal is a misuse of the Troubled Asset Relief Program, which they say was intended for financial institutions, not carmakers.

GM Impact

The outcome of the appeal may influence the reorganization of General Motors Corp., which plans a similar quick sale of its best assets. Chrysler and General Motors have taken around $25 billion in bailout loans and want about $40 billion more to complete their reorganizations.

The June 5 appeals court ruling “does set a precedent that the structure of this quick sale is acceptable, and that will help GM and discourage appeals,” said Seton Hall University bankruptcy law professor Stephen Lubben.

The sale would be financed with $2 billion from the U.S. and Canadian governments, which would take equity stakes in the new Chrysler along with Fiat and a worker health-care fund.

Chrysler has said it may have to liquidate should the sale be rejected, eliminating 38,500 of its jobs. The deal would transfer its Jeep, Chrysler and Dodge brands to a new company stripped of most debt so it can be competitive.

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The appellate case is In re Chrysler LLC, 09-2311-bk, U.S. Court of Appeals for the Second Circuit (Manhattan). The Supreme Court application is Indiana State Police Pension Trust v. Chrysler, 08A1096.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net; Tiffany Kary in U.S. Bankruptcy Court at tkary@bloomberg.net

Last Updated: June 7, 2009 01:59 EDT