Issues for those teams usually 'best effort' isolation going forward, which compounds the issue.
I mean, maybe not—you might lose the users impacted by the bug. Which from a company PoV is probably a loss, but depending on how broken incentives are may not be for the dev team.
I won’t argue that my way is the only correct way because I’m certain it’s not.
Something I didn’t make clear in the very brief description I gave was that, yes, capturing context of what was there is important.
That said - the two projects I worked in where we did this were filled with bad bugs (a separate and problematic issue).
Nothing really replaces spending time with users. That’s what I tend to opt for - figuring out what sucks in their experience and iterate on that.
This context is really valuable when reasoning about the product or determining what's important to prioritize.
The issue with the "declare bankruptcy and important stuff will come back" is that you don't actually solve the underlying ruthless prioritization issue and very quickly end up in the exact same position.
You also irritate people that spent time writing up product issues for potentially important bugs by auto closing them (so many important things may not come back), but the bigger loss is that going through all of them gives you solid product historical context.
For what it's worth, the best PMs I know go through the backlog and understand what they're killing when they approach a project that's currently fucked. I think it has a positive side effect of giving them a lot of credibility too (as well as helping them ramp up).