The KSS deal would help it deal with the fallout from its defective airbag inflators at the centre of the global auto industry's biggest ever recall, the two companies said in a joint statement.
In January, Takata agreed to pay $1bn (£784m) in penalties in the USA for concealing risky defects, and pleaded guilty to a single criminal charge.
Takata chief executive Shigehisa Takada said: "We're in a very hard situation, and we had to find a way to keep supplying our products".
Takata pleaded guilty and must pay United States dollars 1 billion in fines and compensation to both victims and carmakers, a burden which means the company is forced to sell.
Takata faces billions in lawsuits and recall-related costs to its clients, including Honda, BMW, Toyota Motor Corp and others, which have been paying recall costs to date.It also faces potential liabilities stemming from classaction lawsuits in the United States, Canada and othercountries.Industry sources have said that recall costs could climb to about $10 billion.
The U.S. company would keep "substantially all" of Takata's 60,000 employees in 23 countries and maintain its factories in Japan.
Under the agreement with Key, remnants of Takata's operations will continue to make inflators to be used as replacement parts in the recalls, which are being handled by 19 affected automakers. Automakers would get $850 million in restitution for recall costs and a $25 million fine would be paid to the government.
Takata's air bag inflators are blamed for rupturing and spewing unsafe debris into a vehicle's cabin, as NPR's Sonari Glinton reported.
Analysts also point out that since Key Safety Systems will buy the new entity, Takata air bags and seat belts are expected to be fully rebranded as the USA maker's products.
The tower that's been teetering on the bring of collapse for the past few years has finally toppled over as Takata has officially filed for bankruptcy.
The Tokyo Stock Exchange said its shares would be delisted on July 27.
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As the public continues to observe the bankruptcy proceedings, be sure to check if your vehicle could be part of the recall.
Key, which makes inflators, seat belts and crash sensors for the auto industry, would not comment on reports that it would purchase the Takata assets.
USA lawmakers have criticized the pace of the recalls.
The lead attorney for people suing the automakers said in a statement that he doesn't expect the bankruptcy to affect the pending claims against the companies.
That settlement will speed the removal of faulty inflators from 15.8 million vehicles and compensate consumers for economic losses, he said.
Toyota and Honda said after Takata's decision was announced that they may not be able to collect the money owed them. That's what attracted Key Safety Systems, which is owned by China's Ningbo Joyson Electronic Corp.
The company is headquartered in Sterling Heights even though it was acquired past year by Chinese automotive conglomerate Ningbo Joyson Electronic.
The Takata corporate name may not live on after the bankruptcy.
Takata says on its website that its products have kept people safe, and it apologizes for problems caused by the faulty inflators.
KSS said it would retain nearly all of Takata's employees and did not intend to close any of the company's manufacturing facilities. But the crisis reached a peak only in 2014 when earlier deaths started getting more media attention and the US National Highway Traffic Safety Administration became involved in the ballooning recalls.
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