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The United States Treasury Department has announced that Chrysler Financial will wind down its operation by the end of 2011. The former Chrysler financing arm has been struggling since Chrysler filed for bankruptcy on April 30.

Once the preferred lending firm for Chrysler, Chrysler Financial was kicked to the curb earlier this year after President Obama’s auto task forced put GMAC in charge of Chrysler’s lending operations. Chrysler Financial retained a small portion of its auto business, but was forced to rely heavily on its other business operations – such has dealer insurance — for income.

However, the news comes as quite a shock as Chrysler Financial reportedly repaid its $1.5 billion government loan in July. The fact that the U.S. Treasury is announcing the firm’s demise indicates that Chrysler Financial is still on the hook for its tax payer-funded bailout loans. It remains to be seen just how much of that loan Chrysler Financial has actually repaid.

Because of its impending liquidation, pay czar Kenneth Feinberg has also signed off on higher-than-normal compensation packages for Chrysler Financial employees. “Its success in the wind-down of operations and repayment of lenders and investors is largely dependent upon maintaining critical talent,” Feinberg said in a letter approving Chrysler Financial’s pay structure. “The risk of employee departures must be minimized because Chrysler Financial has publicly stated that it intends to wind down its operations and will have difficulty attracting new employees.”

Chrysler’s Financial’s top employee will take home $1.5 million this year. Chrysler’s other top 20 employees will take home between $176,000 and $1.4 million in 2009. Despite those rather eye-popping numbers, overall top-employee salaries will be down 30 percent this year.

Chrysler Financial – fully owned by Cerberus Capital Management – employs 2,640 people.