This is a really unusual circumstance. By not recording the contract, the debt was not perfected and is not secured by the property. However, a land contract does not require the creditor to transfer title until the contract is fullfiled, and therefore if the debtor does not pay, then the creditor remains the owner.
The contract, at this point, is executory (incomplete), and the trustee has the right to affirm or reject it. If the trustee affirms, then the trustee can sell the property to pay the debtor's creditors from the $40,000 equity. And, if the trustee affirms, then you get paid, because that's the only way that you're obligated to transfer title to the property to a new owner.
If the trustee rejects the debt, then the property is yours and you can do what you want with it.
You may want to line up a local bankruptcy lawyer who understands "executory" contracts in bankruptcy, because the unusual nature of this transaction could get gray and adversarial in a hurry.
My gut says that you wouldn't even want to file a proof of claim with the bankruptcy court, because that would give you the right to a jury trial, which increases your leverage, since jury trials are more expensive and time consuming. But, I admit that this is a very weird situation, and it deserves a lot of research before making any decsion on how to proceed.
For a bankruptcy attorney referral, see: http://www.abanet.org/legalservices/lris/directory/main.cfm?id=MI and www.martindale.com.
Hope this helps.
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