Washington Mutual Inc said it could end its three-year bankruptcy by November, allowing it to distribute $7 billion to creditors, if a judge limits the scope of outstanding disputes to be mediated.

Washington Mutual has languished in Chapter 11 bankruptcy since regulators seized its savings and loan in September 2008 in the biggest bank failure in U.S. history.

Delaware bankruptcy Judge Mary Walrath last month rejected the company's bankruptcy plan, which lays out how it will repay creditors. In her opinion, she ordered mediation as a way to end lingering disputes.

In a court filing late on Monday, the company suggested that it could present a revised bankruptcy plan that would resolve Walrath's concerns and be out of bankruptcy by October 31.

The company said the proposed changes do not affect the payouts to creditors and would not require putting the modified plan to a new vote of creditors.

Ending the bankruptcy quickly would require that mediation would be limited to one issue: the claim by shareholders that hedge funds that negotiated Washington Mutual's bankruptcy plan engaged in insider trading.

Shareholders accuse the hedge funds of using information gleaned from negotiating Washington Mutual's bankruptcy plan to score big profits trading the company's securities.

Shareholders believe their claim of insider trading could be remedied by preventing the hedge funds from collecting some of the roughly $2 billion they are owed by Washington Mutual.

That claim could be resolved after the company exits bankruptcy without any impact on other creditors, Washington Mutual's attorney, Brian Rosen, said on Tuesday.

Washington Mutual, its creditors and shareholders are scheduled to discuss how to proceed at a status conference on Thursday in Delaware's bankruptcy court.

The case is In re Washington Mutual, U.S. Bankruptcy Court, District of Delaware, No. 08-12229.

(Reporting by Tom Hals, editing by Maureen Bavdek)

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