ResCap Unit of Ally Financial Plans to File for Bankruptcy The mortgage unit of Ally Financial plans to put itself into bankruptcy, according to people briefed on the matter, allowing the bank to effectively remove the biggest obstacle to its turnaround efforts. The division, known as Residential Capital or ResCap, was expected to file for Chapter 11 as soon as late Sunday evening, these people added. ResCap's board was met late Sunday to authorize the move. Once the bankruptcy case begins, the Fortress Investment Group is expected to bid $2.4 billion for a majority of the unit's assets, while Ally is expected to bid for the rest, essentially beginning an auction for ResCap. Barclays has agreed to support the Chapter 11 case with a $1.45 billion loan. The mortgage division's long-awaited filing could lift the biggest weight on Ally, which has sought to focus on its profitable bank and auto finance operations. It could also allow the lender to reconsider going public, helping the federal government to shed some of its 74 percent stake. The Treasury Department injected some $17 billion into the company, previously known as GMAC, through three rounds of investments. It is still owed about $12 billion. General Motors sold a majority interest in Ally, once its financing arm, in 2006. By the time of the auto bailouts, Ally was seen as a crucial part of the Obama administration's rescue of G.M. and Chrysler, given its role as a key source of buyer and dealer financing. Early last week, the Treasury Department gave its conditional approval to a ResCap bankruptcy filing, according to the people briefed on the matter. Ally and ResCap have also been working on securing the blessing of several major bondholders, a group that includes hedge funds like Appaloosa Management and Paulson & Company. A spokeswoman for Ally declined to comment on Sunday. Ally has long identified ResCap as one of its biggest problems. The mortgage unit, formally created in 2005, became one of the biggest subprime mortgage lenders in the country and was hit especially hard by the financial crisis. Under Michael A. Carpenter, a former senior executive at Citigroup, Ally has largely rebounded by focusing on its popular online lending arm and remaining a major lender to car dealers. Last month, it reported that its first-quarter net income had more than doubled, to $310 million. Still, ResCap has cast a long shadow over its parent. The unit was considered a primary reason that Ally failed the Federal Reserve's stress test of banks earlier this year. Ally had sought to go public last year, but scrapped its initial offering after potential new investors proved cool to the idea, people briefed on the matter said at the time. The timing of ResCap's filing was determined in large part by its looming debt maturities. It missed a $20 million payment due last month. A $100 million interest payment on some of its bonds comes due on Tuesday, and $130 million in principal is due two days later. While Ally has helped keep its mortgage unit afloat, providing more than $1 billion, its management has viewed a bankruptcy filing as increasingly inevitable. When it reported its first-quarter earnings, the firm said that one of its foremost priorities was to announce a "permanent mortgage solution" that would maintain the division's stability and protect its remaining franchises. The bankruptcy will not be without bumps. ResCap is already a target of state regulators over mortgage investments to which the unit is tied, and creditors may seek to block any sale of the unit's assets. Elliott Management, a hedge fund that owns a 2.3 percent stake in Ally and a portion of ResCap's bonds, sent a letter to Ally's board in March arguing against any possible sale. Also, some creditors may argue that Ally should cover any losses incurred as a result of ResCap's filing.