What they will take would largely depend on whether their lien reflects any equity in the property. If the property isn't worth much more than the first mortgage, they probably are more inclined to deal. If the property is worth more than the sum of the two mortgages, then why should they accept anything just because the owner wants to sell. He should sell and let the secured creditors be paid off. This is their right from the contracts he made with them and the bankruptcy proceedings.
When the loan is discharged in bankruptcy the amount discharged is not included in income because of the bankruptcy exception in IRC § 108. Thus it doesn't matter whether he was insolvent or not. However, there is still the potential issue of having to adjust other tax items to account for the fact that the discharged debt is excluded from income.
House is maybe worth 210 215k and mortgages together equal 260k roughly.
I'm just mad I didn't take care if this earlier. Now I want to buy another house. Right now the mortgage doesnt show on my credit report. If i refinance it will and then i wont be able to get a new house. If i rent out my current house and look for a new house, i could i guess wait to refinance.
Such is the nature of chapter seven bankruptcy. You don't have any equity here. If you were selling you might convince the second to take a short sale, but I'm not seeing them taking chump change when looking at a $54K note with about half that equity remaining.