Yesterday, Chrysler filed for Chapter 11 bankruptcy protection in preparation for a partnership with Italy’s Fiat. President Barack Obama says he hopes the bankruptcy proceeding will be quick and efficient, done in 30-60 days. I hope so too. But a Chrysler bankruptcy has many moving parts — and with Chrysler unable to make money selling cars, it just doesn’t have enough nongovernment cash to grease those moving parts to facilitate a smooth bankruptcy. Chrysler is in worse shape than GM. And remember, Fiat has yet to offer a penny for its 20% share in Chrysler.

This could get messy and easily last longer than the 30-60 days now advertised. First off, in a bankruptcy any single creditor is entitled to get the liquidation value of its claim, under 1129(a)(7) of the Bankruptcy Code and the bankruptcy judge cannot approve a plan of reorganization that fails to comply with 1129(a)(7). So any creditor can assert that what it would get if Chrysler sold its factories quickly would be more than the 32 cents per dollar that Treasury had guaranteed Chrysler’s secured creditors before the government deal fell apart this week.

Valuation proceedings are notoriously difficult in Chapter 11. Although the judge doesn’t actually need to liquidate Chrysler, the judge must determine what it would have gone for if there were a liquidation. Some creditors appeared ready to bring that case to the bankruptcy judge. While the judge may in the end conclude that Chrysler’s liquidation value is less than the 32 cents the creditors would receive, with public estimates now varying substantially, a valuation hearing if brought, and if not suppressed with a quick estimate from the judge, is not likely to allow the proceeding to close within 30-60 days.

On top of liquidation value, the whole class of secured creditors is entitled to the fair value of their claims for any deficiency portion not satisfied by the value of the security. Usually that value is greater than liquidation value, though Chrysler may be an exception.

The government thinks the additional value issue will be resolved easily. That’s because in a bankruptcy proceeding the creditors whose claims amount to two-thirds of the total amount of debt can bind the rest to take the deal. Indeed, the judge doesn’t have to figure out whether value is fair, if the class of creditors votes in favor. And since two-thirds have already raised their hands in favor of 32 cents on the dollar, it seems to be a done deal.

But this time it might not be so easy. Not all of those who’ve already raised their hands in favor prior to bankruptcy, especially the smaller investors, will still be raising their hands inside Chapter 11. They can change their mind, and some just didn’t want any negative publicity before the bankruptcy.

Worse, there could be a legal fight over whether the vote of Citibank and the other “big four” creditors — J.P. Morgan Chase, Morgan Stanley and Goldman Sachs, who together hold 70% of Chrysler’s debt — should be counted toward the two-thirds threshold that would bind the company’s other 42 creditors. The Bankruptcy Code requires that the votes of creditors be given in “good faith.” It won’t be hard for the smaller creditors to argue that Citibank and other TARP recipients’ votes aren’t in full good faith. In agreeing to Treasury’s offer of 32 cents for each $1 of their debt, the objectors would say, Citibank and some others were influenced by the fact that Treasury was keeping them afloat with federal subsidies. If this type of litigation begins, it won’t be easily resolved.

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