How dreadful. And for your transaction to go to that extent and be pulled. Wow. I wonder if you could sue her for specific performance. If it is a short sale purchase you would not be able to sue her but if it were a standard sale I'm thinking that you could - if you wanted to of course.
You are absolutely entitled to your money back plus a $1,000 penalty if she does not willingly sign the mutual agreement that escrow needs to release funds (not that is enough money for all your trouble). You need to file a civil action in court right away mandating that she sign the release. You need a court order from a judge so that escrow can release your money. Don't delay. All court fees shall be burdened by the seller when it's all said and done.
I'm not an attorney. This information is only my opinion based on personal experience. Hire an attorney right away and get your money without any further delay.
Diane Wheatley, Broker
This is a sticky situation.
All the best that it turns out well for you.
Diane is correct: you might be able to sue for specific performance or to get your money back. Yet, if you opted to pursue your claim, then the bankruptcy judge handling that case might render it null and void. However, you still might be able to get the property anyway in time if your seller's lender can get that property exempted from the bankruptcy estate, or if that seller gets kicked out of bankruptcy.