ResCap files Its Chapter 11 Plan

Running a business can be great. However, it is always possible for a business to fall into hard times, and when it does, it can be difficult to recover. One option for businesses that are in financial trouble is chapter 11 bankruptcy.

Residential Capital LLC (ResCap) filed for bankruptcy protection on May 14, 2012. ResCap is the mortgage lending unit of Ally Financial. ResCap recently filed its chapter 11 plan, which describes how its creditors will be paid. Under the plan, junior secured noteholders will be paid in full. However, unsecured creditors will only be paid 36.3 cents on the dollar (they will receive approximately $779 million of the $2.15 billion that they are owed).

A large portion of these payouts will come from ResCap’s parent company, Ally Financial. In return for a release of liability from claims by ResCap and its creditors, Ally will pay ResCap $2.1 billion.

The plan is not yet binding. First, the disclosure statement (which in this case is 399 pages) must be approved. Then, the plan needs to be voted on by creditors and approved by the bankruptcy court. So, ResCap has a ways to go before its bankruptcy is complete.

If a business is considering bankruptcy it should consult with an experienced bankruptcy attorney to go over its options. One of the biggest benefits of bankruptcy is the automatic stay, which temporarily puts a halt to almost all creditor actions, including foreclosures and lawsuits.

Source: Jonathan Stempel, Reuters, “Ally’s ResCap unit files bankruptcy plan,” July 5, 2013