Washington Mutual Files Re-Organization Plan Backed by JP Morgan Chase (NYSE: JPM)

Washington Mutual Inc, the former parent of the largest bank to fail as part of the financial crisis, has filed a bankruptcy reorganization plan and a disclosure statement supported by its creditors and JP Morgan Chase & Co (NYSE: JPM)

Washington Mutual will establish a liquidating trust which will distribute funds in excess of $7 billion, including $4 billion of previously disputed assets which were on-deposit with JP Morgan Chase, according to new court documents filed on Friday inU.S. Bankruptcy Court in Wilmington, Delaware.

“The proposed plan will provide substantial recoveries for the company’s creditors and reflects Washington Mutual Inc.’s diligent efforts over the last 18 months to maximize the value of the bankruptcy estate,” said the company yesterday in a statement.

The money which will be paid to creditors is currently being held by JP Morgan, which bought Washington Mutual Inc’s bank for $1.9 billion in September 2008 after it was shut down by federal regulators. Washington Mutual Inc no longer has any banking operations and is liquidating itself under bankruptcy court supervision.

A hearing has been set on May 19th for requested approval of the disclosure statement with a confirmation plan which the company hopes to have in place by July 20th.

Washington Mutual Inc, JP Morgan Chase and the FDIC reached an agreement on March 12th in a global settlement accord.

“The FDIC has not agreed to all of the provisions contained in the draft settlement agreement,” WaMu said in the statement. “However, discussions are ongoing among the parties and they are hopeful that such agreement will be obtained in the near future.”

Under the agreement, Washington Mutual Inc, JP Morgan Chase and the FDIC will share two tax refunds which are anticipated to be worth $5.4 billion and $5.8 billion. Washington Mutual believes that its share will be between $1.8 billion and $2 billion according to court papers.