Back to the questions at hand...
First of all, I just want to make sure that I understand the situation correctly--it's the BUYER who is filing Chapter 7, not your parents. The parents are on a deed which is implicated in the BK.
1.What rights do my parents have.
Because it sounds like the buyer's mortgage paid off your parents in full (regardless of the fact that YOU were making the payments for him...), their rights are going to be limited to the dollar value of their share of the land. If the land is worth less than the outstanding loan plus all foreclosure costs ($$ouch!), then they really have no rights that come down to money.
2.Is the non-insider responsible for buying them out?
Only if the court orders the land sold, and they have some equity in the property. If he wants to re-affirm on the debt and keep the land AND the buyer's equity in the land is below the Ohio exemption limit, then he *could* keep the land and nothing really changes. The "buy-out" if needed and allowed would almost certainly be from the sale proceeds.
3.How does the equity get divided?
Generally-accepted accounting practices will trace purchase price exchanged at each transaction. The exact language of the deed will also help control the answer. If the parents really paid nothing for getting back on the deed (and the land was paid for in full TO THEM by the mortgage), and there was no equity in the land when their names showed up on the later deed, then they really own nothing from a financial standpoint. An X% share of land which has zero equity is still zero, because the lender gets to take its value out FIRST, before anyone else gets paid.
On the other hand, even if they paid nothing, there could be a legal gift
of whatever share of the property was stated in the deed of conveyance. There *might* be a presumption of half and half with the buyer, but that depends on the language of the deed and Ohio law. That requires an personal consultation with full review of the documents.
Is there anything they can do at this time to make sure they don't lose the land in his bankruptcy?
The most reliable way to save their ownership interest as shown on the deed would be to buy out the buyer, which results in the dollars of that sale going into the BK estate. DO IT AFTER MOTION AND GETTING PERMISSION OF THE COURT and pay the money through escrow to the BK Trustee. If the buyer takes the money and runs, the feds will be all over everyone with accusations of trying to defraud the buyer's creditors.
I do plan on giving you a bonus for your time.
Thank you. I often work way too hard on some of these questions.