Ally Financial Inc. (ALLY), the auto lender majority-owned by U.S. taxpayers, has received conditional U.S. Treasury Department approval for plans to put its Residential Capital unit into bankruptcy, according to an Obama administration official.

Treasury officials will support the decision of directors at Ally and ResCap if they decide a bankruptcy filing is the best course of action, said the person, who asked for anonymity because the arrangements haven't been made public. The approval is conditioned on a review of the final terms, according to the person.

Administration officials have concluded that addressing mortgage losses at ResCap will put taxpayers in better position to recoup their investment in Ally, the person said.

Chief Executive Officer Michael Carpenter is searching for ways to repay U.S. bailouts exceeding $17 billion that left the Treasury Department with a 74 percent stake. Carpenter, who once predicted that a pending initial public offering could value Ally at $30 billion, later said the sale won't happen until there's progress on resolving the mortgage unit.

Ally confirmed last month that ResCap is considering bankruptcy and said the parent company's loss could range from $400 million to $1.25 billion. The lender, formerly known as GMAC, is based in Detroit.

Matt Anderson, a spokesman for the Treasury Department, and Gina Proia, a spokeswoman for Ally, declined to comment.

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