Jayhawk Acceptance Corp. announced Thursday that it is filing for Chapter 11 bankruptcy, prompted by Fleet Financial Group's demand for immediate repayment of a $65 million revolving line of credit.

Fleet had notified Jayhawk that it was in default, the used car lender, based in Dallas, said.

Last Thursday, Jayhawk reported a $7.9 million loss for the fourth quarter. That news, combined with reports of accounting irregularities at Mercury Finance Co., threw the entire subprime auto sector into turmoil.

The latest jolt came just as Jayhawk seemed to be getting a handle on its problems. On Tuesday, the company announced it had pulled the plug on loans to some unprofitable car dealerships, tightened terms for purchasing installment contracts from other dealerships, and fired 50 sales and marketing employees in the process.

"Obviously, this is a major surprise," said Dennis Telzrow, an analyst who follows subprime lenders for Principal Financial Securities, Dallas. "Wall Street has thrown a lot of money at these companies. One never knows who's doing it right and who's doing it wrong."

Chapter 11 protection would force creditors to wait while Jayhawk tries to reorganize its operations. Fleet officials declined to comment.

In other news, regulators took steps Thursday to ensure that Mercury Finance Co.'s insurance unit remains untarnished by the company's troubled auto finance operation.

Missouri Department of Insurance spokesman Randy McConnell said the agency instructed Lyndon Property and Lyndon Life Insurance Cos. to inform regulators if parent Mercury makes any "unusual" requests for fund transfers.

The agency has also notified Mercury not to remove Lyndon officers without department approval. Earlier in the week, the troubled company added people with auto finance backgrounds to its board of directors.

Originally the accounting irregularities that triggered Mercury's financial crisis were thought to be primarily in its St. Louis-based insurance unit. But on Wednesday Lyndon's president said his company's books were clean. Analysts now say they believe Mercury's problems stem from its auto finance division.

The move to guard Lyndon's assets is significant because analysts believe it offers the greatest value for an outside buyer. Selling the insurance unit is Mercury's best hope for survival, analysts say.

Also on Thursday, Mercury announced that it was suspending payment on its dividend of 7.5 cents per common share, a move that will save $13.3 million. "It makes sense to me," said Piper Jaffray analyst Jeffrey Evanson. "Liquidity preservation is the name of the game for them now."

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