Since it was discharged, you no longer have any personal liability for the debt (including any deficiency). It would strike me that if you have no personal liability and accordingly, it is not a debt.
You should check your credit reports and see if all of your debts reflect having been discharged in bankruptcy. They should. If not, I would recommend these folks to take care of it for you: www.cmafinancial.com
Technically, the bank could foreclose anytime they wanted because there is no longer a payment agreement existing. However, as you probably have noticed, they take the money and don't bother foreclosing.
If you sign a deed to your sister, title passes subject to existing debt. I presume the bank wouldn't know the difference and life would go on. However, the bank could still foreclose at any time. Moreover, your mortgage most likely has a "due on sale or transfer" clause which provides that they can foreclose if you try to sell or transfer the property. Again, if they don't notice
, they won't foreclose.
However, there are no guarantees for your sister that they won't decide to foreclose one day and she might lose the equity
she has built up unless she can refinance the remaining debt.
I can't give you specific advice because of the nature of this website. What you would be doing does not strike me as illegal.
I like your thinking!
Let me know if I missed anything.