NEW YORK, Sept 10 (Reuters) - Auto dealer Tricolor filed

for Chapter 7 bankruptcy in Texas court on Wednesday, moving to

liquidate its business a day after Fifth Third Bank

warned of alleged fraudulent activity at the company.

Tricolor, the third-largest used auto retailer in Texas and

California, has more than $1 billion in assets and over $1

billion in liabilities, with more than 25,000 creditors,

according to its bankruptcy petition.

Fifth Third said late on Tuesday it had discovered alleged

external fraudulent activity related to a $200 million

asset-backed loan held by Irving, Texas-based Tricolor.

Fifth Third said it was working with law enforcement and

that it expected to take a $170 million to $200 million

impairment charge for the loan.

Other banks could also face losses in the car dealer's

bankruptcy. JPMorgan ( JPM ) has nearly $200 million of exposure

to Tricolor, according to a source.

JPMorgan ( JPM ) and Fifth Third declined to comment on Wednesday.

An attorney who helped Tricolor file for bankruptcy declined

to comment on the fraud allegations, and said he would no longer

be working for the company after its filing.

The U.S. Justice Department is investigating the alleged

irregularities at Tricolor, the Financial Times reported on

Wednesday, citing two people briefed on the matter. The Justice

Department did not respond immediately to a request for comment.

Tricolor, with operations in six states, sold cars and

provided auto loans mostly to low-income Hispanic communities in

the Southwestern United States, saying it saw an opportunity to

serve "invisible" workers with no access to bank accounts or

other forms of credit.

Tricolor said in June it had disbursed more than $5 billion

in affordable auto loans to Hispanic car buyers who had been

"left behind by mainstream financial providers."