State officials in Illinois, Ohio and Indiana are objecting in the U.S. Bankruptcy Court for Southern New York to the sale of Chrysler LLC's assets to Italian automaker Fiat SpA in an effort to protect workers in their states.

Illinois Attorney General Lisa Madigan and Ohio Attorney General Richard Cordray said in separate filings this month that they oppose terms of the sale because it would allow Fiat to avoid assuming the workers' compensation liabilities of injured Chrysler workers in their states, leaving the states to pick up the slack. The attorneys general said they're not opposed to the sale if the agreement can be revised to pay for the injured workers' benefits, which they believe the remaining Chrysler entity couldn't afford.

When Chrysler, a U.S. automaker created in 1924, filed for Chapter 11 bankruptcy protection on April 30, the automaker said it had reached a restructuring agreement with stakeholders that included a sale of most of its assets to Fiat. The law firm Jones Day is representing Chrysler in the bankruptcy. The United Automobile Workers, the union representing Chrysler workers, and the U.S. government have major stakes in the company.

In its limited objection on May 13, Ohio's attorney general said that his office "opposes any sale that does not fully provide compensation" for Chrysler's injured workers. He said that if Chrysler defaults on the workers' compensation claims, the state's Bureau of Workers' Compensation would have to take them on, dealing a blow to its workers' compensation program and ultimately hurting the Chrysler workers' benefits. The default would most likely make Fiat ineligible for certain workers' compensation programs in the state, the filing said. The Illinois Attorney General's Office is making similar objections.

Indiana State Treasurer Richard Mourdock objected to the "illegal" plan to sell the assets on the ground that state worker pension funds that invested in debt securities tied to Chrysler would be adversely affected by the sale. The pension funds invest on behalf of state police, teacher and other employees and cover about 100,000 workers and family members. The Indiana treasurer argues that Chrysler shouldn't be allowed to sell collateral backing the senior secured debt claims held by the funds and use the proceeds to pay off unsecured trade and union creditors.