Ally Financial's ResCap mortgage unit seeks bankruptcy protection ...

The U.S. government is hoping that the bankruptcy filing by Ally Financial Inc.?s troubled mortgage business will help the company repay its government bailout faster.

Residential Capital, or ResCap, filed for Chapter 11 bankruptcy protection in New York on Monday, unable to make payments on debt taken out to finance soured home mortgages. The filing will separate the money-losing ResCap subsidiary from Ally?s auto loan and banking businesses, allowing them to grow and speed up repayment of Ally?s bailout from 2008 and 2009, Ally said in a statement.

Ally also said Monday that it is exploring the possible sale of its international operations, a move that also should help strengthen its finances and make payments to the government. International businesses include auto loan, insurance and banking operations in Canada, Mexico, Europe, Britain and South America.

Ally, which is 74% owned by the U.S. government, was the financial arm of General Motors until the banking industry meltdown in 2008. It needed a $17.2-billion bailout to survive the downturn. Ally has repaid about $5.5 billion and it still owes the government just under $12 billion. The government is hoping to get the rest of the money back through a public stock offering by Ally, or perhaps the sale of its remaining businesses.

When the bankruptcy and potential sale of international operations are finished, Ally expects to repay two-thirds of its bailout, or about $11 billion. The additional payments could come by year?s end, the company said.

?We believe that this action puts taxpayers in a stronger position to continue recovering their investment in Ally Financial,? Assistant Treasury Secretary Timothy Massad said in a statement.

ResCap is a separate company, and the government does not hold any debt or equity in it, the government said. The ResCap board decided to seek bankruptcy protection Sunday.

Ally makes loans to GM and Chrysler customers and finances dealer inventories. The government first bailed out the company, then known as GMAC Inc., in late 2008 as part of the Bush administration?s aid to the auto industry. The Obama administration provided additional funding in May and December 2009.

But ResCap has been a drain on Ally?s finances for years, struggling to make payments on its heavy debt ever since the bottom fell out of the U.S. housing market in 2007. In regulatory filings before the bankruptcy, Ally said deterioration in the U.S. housing market has led to fewer sources of money for ResCap, which is highly leveraged because of mortgage defaults.

Without the bankruptcy filing, ResCap would have needed billions of dollars from Ally to pay its debts ?which would have substantially delayed Ally?s plans to repay the remaining capital investment to the U.S. Treasury,? Ally?s statement said.

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