A bankruptcy hearing on whether to shutter a quarter of Chrysler LLC's dealers will begin a day later than expected.

The hearing, originally scheduled for Wednesday, is expected to begin at 8 a.m. EDT Thursday before U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan, according to a court filing.

The parties will present evidence Thursday and possibly Friday. Oral arguments on the dealerships are set for Tuesday.

Chrysler is looking to close 789 of its 3,200 dealers as part of its effort to sell the bulk of its assets to a new company owed in part by Italy's Fiat SpA (FIATY). The affected dealers accounted for about 14% of Chrysler's sales last year.

The auto maker has said the move is necessary because its dealer network is too big and dealerships in some markets overlap. Chrysler also is focusing on putting its three brands under one roof, rather than having standalone Dodge, Chrysler or Jeep franchises.

Gonzalez approved the sale late Sunday, but a group of Indiana pension funds has appealed his order.

Under Chrysler's plan, Fiat would initially own 20% of the new company, though it would have the option of increasing its stake to as much as 51%. The United Auto Workers union would initially get a 55% stake, while the U.S. and Canada, which are lending Chrysler $4.9 billion during the bankruptcy, would own 8% and 2%, respectively.

The Indiana funds claim the sale of Chrysler is unconstitutional, saying the plan upends the rights of senior lenders to be paid off before junior creditors and the Treasury Department doesn't have the authority to lend bankruptcy financing under the Troubled Asset Relief Program.

Oral arguments before the U.S. Second Circuit Court of Appeals in New York are set for Friday afternoon.

"We are pleased that the Court of Appeals in setting this schedule and has recognized the sense of urgency Chrysler has to preserve and protect its going concern value. We look forward to an expeditious conclusion to this matter and to getting back to building vehicles," Chrysler said in a statement Wednesday.

Separately, Chrysler is scheduled to ask Gonzalez Wednesday to approve a settlement involving former parent Daimler AG (DAI), existing owner Cerberus Capital Management, and the Pension Benefit Guaranty Corp., the government's pension watchdog.

Under the deal, which is a key piece of Chrysler's restructuring plan, Daimler will forgive $1.9 billion in loans to Chrysler and Cerberus will forgive a $500 million loan to the auto maker, according to court documents.

In addition, Daimler has agreed to contribute $600 million to Chrysler's pension plans during a two-year period. The PBGC has estimated Chrysler's pension plans are underfunded by $10 billion.

Later Wednesday, General Motors Corp. (GMGMQ) Chief Executive Fritz Henderson and Chrysler LLC President Jim Press are expected to testify in Washington on how their companies' restructuring plans will affect car dealers. GM filed for bankruptcy protection Monday.

The hearing, set for 2:30 p.m. EDT, was called by U.S. Sen. John Rockefeller, D-W.Va., chairman of the Senate Commerce, Science and Transportation Committee, who has voiced concern about the auto companies' plans to drastically reduce their dealer networks.

The hearing comes amid a major lobbying campaign by dealers on Capitol Hill to pressure lawmakers to rein in the plans.

Several auto dealers are also scheduled to testify, including John McEleney, chairman of the National Automobile Dealers Association.

-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com

(Jeff Bennett in Detroit and Josh Mitchell in Washington contributed to this story.)