Bloomberg reports that in order to be paid back its bailout loans, the US government may force GM and Chrysler into bankruptcy court. As the loans currently stand, the taxpayer money is last to be paid back after billions in debts the companies owe to Citigroup, JPMorganChase and Goldman Sachs. Looking to nudge taxpayers to the front of the line for payment, the Treasury Department has hired a group of law firms to examine the situation: Cadwalader, Wickersham & Taft LLP and Sonnenschein, Nath & Rosenthal, both from Chicago, and Rothschild Inc., an investment bank.

As a condition of the bailout funds, if the federal government cannot come to terms with GM and Chrysler’s other creditors about heading to the front of the pack, the government can send the companies into bankruptcy as a condition for further loans and go to the front through converting the bailout funds to “debtor in possession” (DIP) loans to the car companies, which are dealt with first in bankruptcy proceedings.

The automakers have rejected any calls for bankruptcy, saying the process would lead to liquidation after scaring off further creditors. Both are attempting to pare down debt in anticipation of a February 17th deadline for presenting plans on how they can repay the government loans.

GM is renegotiating $27.5 billion in debt in an attempt to get it down to $9.2 billion in exchange for equity to debtors. Chrysler owes $7 billion to Goldman Sachs, JPMorganChase and Citigroup and another $2 billion to Cerberus Capital Management and Daimler, which own 80% and 20% of Chrysler’s shares respectively. GM is on the hook to JPMorgan and Citigroup for $6 billion in loans.

Lawmakers discussing the bailout had pointed out that taxpayer money should not be lost if the companies failed.