WASHINGTON -- The Obama's administration's leading plan to fix General Motors Corp. and Chrysler LLC would use bankruptcy filings to purge the ailing companies of their biggest problems, including bondholder debt and retiree health-care costs, according to people familiar with the matter.

The move would in essence split both companies into their "good" and "bad" components. The government would like to see the "good" GM to be a standalone company, according to an administration official. The "good" Chrysler would be sold to...