Bankruptcy is a legal process that allows a person or business to get out of
debt. When a person or business files for bankruptcy, they are protected from their creditors from collecting on their debts. This allows the person or business to get a fresh start and reorganize their finances.
In the context of
securitisation, bankruptcy can be a risk for investors. If the issuer of a securitisation bond files for bankruptcy, the investors may not be able to recover their investment. This is because the assets that back the securitization bond may be sold to pay off the issuer's other creditors.
To protect investors from bankruptcy risk, securitization structures typically include bankruptcy remote trusts. A bankruptcy remote trust is a legal entity that is separate from the issuer of the securitisation bond. This means that the assets in the trust cannot be seized by the issuer's creditors if the issuer files for bankruptcy.