Straight answer

What happens if an airline or tour operator goes bust?

It depends what you booked, which is exactly why we put it in writing on every confirmation. If the failed company is the ATOL holder for your package, the ATOL scheme refunds you or brings you home. If an airline fails and your flight was part of an ATOL protected package, the same applies. A flight bought on its own directly with an airline is the weak spot: it is not ATOL protected, which is one of the reasons we tell you the protection status of every element before you book, and why travel insurance with airline failure cover is worth having.