* Mortgage company on track to exit bankruptcy by year's end
* Confirmation follows settlement with objecting bondholders
By Nick Brown
NEW YORK, Dec 11 (Reuters) - A U.S. Bankrutpcy Court on Wednesday approved Residential Capital's plan to exit Chapter 11 putting the mortgage lender on track to end its 19-month bankruptcy before year's end.
The former Ally Financial Inc subsidiary received the green light on the plan at a hearing in the U.S. Bankruptcy Court in Manhattan, eight days after it struck a deal resolving objections from a group of bondholders.
The plan, based on a $2.1 billion contribution from Ally, could go into effect as early as next week, and definitely by Dec. 24, a lawyer for ResCap said. The exit from bankruptcy means thousands of creditors, including owners of residential mortgage-backed securities that collapsed in the 2008 mortgage crisis, could see recoveries.
"No one should lose sight of the homeowners and borrowers," U.S. Bankruptcy Judge Martin Glenn, who oversaw the bankruptcy, told a packed courtroom.
The confirmation of the plan also means Ally, now part-owned by U.S. taxpayers, can turn its attention to repaying the U.S. government for a $17 billion bailout during the crisis.
ResCap had serviced more than $374 billion in U.S. residential mortgage loans before declaring bankruptcy in May 2012 to address soaring mortgage liabilities. Glenn, who also presided over the bankruptcy of MF Global, called ResCap the "most complex" case he has overseen in seven years on the bench.
Earlier this year, ResCap reached a global settlement with affiliates and others to settle potential legal claims and create a recovery pot for creditors.
But one group of junior bondholders that included Aurelius Capital Management and Marathon Asset Management opposed the plan saying it would not pay them enough interest.
The battle proved central to ResCap's efforts to exit bankruptcy, with the sides going to trial twice on different phases of the objection. Essentially the bondholders, already receiving their full principal and pre-bankruptcy interest - about $2.2 billion - demanded an additional $340 million in post-bankruptcy interest.
Closing arguments in the second phase of the trial had been slated for Wednesday, but the sides settled on Dec. 3, with ResCap agreeing to pay the group $125 million.
In confirming the plan on Wednesday, Glenn chided the bondholder group for a scorched-earth litigation approach that he said may have cost the ResCap estate more than $100 million.
"I'm firmly convinced that the result before me today could have been achieved months ago, with cost savings to the estate," the judge said.
The bankruptcy is: In re Residential Capital LLC, U.S. Bankruptcy Court, Southern District of New York, No. 12-12020.