On May 14, 2012 Ally Financial Inc.'s mortgage business, Residential Capital LLC, filed for Chapter 11 bankruptcy in New York. Also called ResCap, the business sought bankruptcy protection after being unable to make payments on debts used to finance sourced home mortgages. The filing enables Ally to separate the subsidiary from their other businesses, allowing the more successful operations to grow faster. Ally said in a statement that they hope to speed up repayment of their bailouts in 2008 and 2009 by focusing on building their banking and auto loan businesses.

Ally also stated that they are looking into the possibility of selling their international operations, which would likely strengthen their finances and help them repay the government. They currently have international operations in Europe, England, Canada, Mexico, and South America in the auto loan, banking, and insurance industries.

Now 74% owned by the United States government, Ally was once the financial arm of General Motors Co. until the breakdown of the banking industry in 2008. To survive the downturn in the industry, the government provided a $17.2 billion bailout to Ally, which has repaid just $5.5 billion at this time. The government hopes to obtain the remaining $12 billion through the sale of the company's remaining businesses or through a public stock offering. ResCap is a separate company from Ally's other operations, and one in which the government does not hold any debt or equity. Ally expects to repay about $11 billion of its bailout through the bankruptcy and potential sale of their international operations, and said additional repayments could come by the year's end.

Bankruptcy documents said that ResCap and its key creditors have reached an agreement for a fast bankruptcy process. In order for the deal to work, Ally will need to provide $150 million for bankruptcy financing and pay $750 million to ResCap. Ally will also make the first bid on the troubled mortgages to be auctioned, up to $1.6 billion. The deal aims to have ResCap come out of bankruptcy protection by the end of year. ResCap has also reached agreements with big investors to support the bankruptcy reorganization through mortgage-backed securities. A spokesperson for Ally Financial said they believe filing for Chapter 11 will give taxpayers a greater ability to recover their investments in the company.

Ally finances dealer inventories and makes loans to customers of GM and Chrysler. Then known as GMAC Inc., Ally was first bailed out in late 2008 as part of the Bush administration's aid to the automotive industry. They received additional funding from the Obama administration in May and December of 2009. ResCap, however, has drained Ally's finances since the fall of the housing market in 2007, as it continually struggled to make payments on its heavy debt. In regulatory filings, Ally said the deterioration of the housing market has led to less sources of money for ResCap, which is highly leveraged because of defaulting mortgages.

Bankruptcy documents filed by the company lists ResCap's assets at $15.7 billion and debts at $15.3 billion, and stated that the private equity firm Fortress Investment Group LLC has agreed to buy ResCap's assets. ResCap owes approximately $1.9 billion to Ally, with $500 million of that debt unsecured. Ally said in the bankruptcy documents that they may lose the money they loaned to ResCap due to the filing.

The mortgage operations rely heavily on Ally for funding, but the filing stated that Ally and its affiliates cannot assure they will continue their support. If they had not filed for Chapter 11 bankruptcy protection, Ally would have been required to provide ResCap with billions of dollars to allow them to pay off their debts, which would have severely affected Ally's plans to repay their bailouts from the U.S. Treasury.