Term used to describe an entity formed to develop, own and operate a special project while isolating financial risk and minimizing bankruptcy risk, such as a single purpose entity, a special purpose vehicle (SPV) or a special purpose entity (SPE). The term may also be used to refer to the ringfenced assets held by such an entity.

A bankruptcy-remote entity is typically prohibited from incurring debt or other obligations, and is limited in its purpose and the activities in which it may engage. Often, the entity's sole asset is the property securing a loan or debt obligation and its sole purpose is to own and manage such property. Other restrictions, such as independent-director requirements in the bankruptcy-remote entity's organizational documents, are often put in place to reduce the risk that the entity itself will voluntarily file for bankruptcy, be involuntarily forced into bankruptcy as a result of substantive consolidation with an affiliate's bankruptcy or otherwise be adversely affected by a bankruptcy of its parent or affiliates.

Investors in most securitization and structured-finance transactions are protected from the potential liabilities of originators and sponsors using this technique. For more on bankruptcy-remoteness in securitization transactions, see Practice Note, Securitization: US Legal and Structural Considerations. For more information on the parties to a securitization transaction, such as the originator and sponsor, see Practice Note, Securitization: US Transaction Parties and Documents. For more information on securitization generally, see Practice Note, Securitization: US Overview.