I have a client with a $230,000 mortgage on a $260,00 home and a 6 month old bankruptcy, credit score of 670.

I have a bankruptcy of 3 years now.

you may want to factor your appreciation rate at 0% past the default point ;-)  Financing long-term assets with short-term money is the classical road to bankruptcy as has been pointed out in several other posts already4.  

That being said, if you find out for sure that the place is not legal, this is a great negotiating tool to get the owner to come down in price.If everything goes well, maybe you'll scrape through but if it goes really badly, and you lose the house and have to declare bankruptcy, remember you'll still have to repay your parents.

In any investment you must do your due diligence, what could  happen could include your letting your insurance laps, you get sued and end up in personal bankruptcy, or you have minimal coverage and the same thing happens.I'm for real estate investing,which is why I do it,,but you can't just say buying any house in any situation with any skill set is good,, you must be prepared, do your due diligence and do a good job of screening tenants and managing the property

has exercised any bankruptcy rights?

A big concern that I have is that we don't have any start up money to fund our real estate journey with (we are also currently renting) ... and a bankruptcy in our background.  

She is in the process of doing a Chapter 13 Bankruptcy.

I thought the homestead exemption is only relevant if you are trying to get protection from the seizure of your property due to a collection on the debt (like a bankruptcy).  

Bankruptcy legislation in Canada is different.