Bankruptcy does not prevent derivative parties from seizing collateral. If Long-Term filed, it could expect to find its fax machine humming with claims from each of its fifty or so counterparties. In fact, if Long-Term defaulted on any of its seven thousand derivative contracts, it would automatically trigger a default in every one of the others, which covered some $1.4 trillion in notional value. In a bizarre touch, even a contemplation of bankruptcy was considered an act of default.
