Short sales are tricky and unfortunately, situations such as the one you're facing are not that uncommon. The owner of the house or the seller doesn't get anything from the sale of the house because any proceeds will go towards loan payment... If they've filed for bankruptcy, this shows that they don't have much. If you haven't spent money on inspections, in your own interest, and to save yourself time/money, probably terminate the contract and look for another house. There are quite a few available.
Shuchi Agrawal, REALTOR, SFR, CNE, CHMS, VIP Realty