The .NET garbage collector can absolutely handle circular references. The very high level view of how the garbage collector works is …
- Start with locals, statics and GC pinned objects. None of these can be collected
- Mark every object which can be reached by traversing the children of these objects
- Collect every object which is not marked.
This allows for circular references to be collected just fine. So long as none of them are reachable from an object known to be uncollectable then the circular reference is essentially irrelevant.
Note: I realize I’ve left out many fun details in order to keep this answer simple and direct