How do we sell house after Bankruptcy and get a new home loan?

My husband and I filed Bankruptcy and discharged August 2010 (soon 3 years). We did not reaffirm the mortgage. We have kept paying as if nothing changed. We have had our mortgage since 2003 without any late payments. There's a 2nd mortgage on the house for $40k. We did not continue to pay on that after the BK. Our attorney told us not to. They treated it like a credit card debt. We are in much need of a bigger house now. I'm halfway through my pregnancy and have 2 little ones as well (a 19 month old and 3 year old). We were trying to see what it would take to get approved for a new home loan and have run into nothing but problems. Apparently the second mortgage put a lien on the house. Our mortgage company show on our credit report that it was included in the BK even though we have been making payments. They wanted us to get something signed from our Attorney (I'm assuming this is their way for us to reaffirm the loan). I don't want to do that. I've read from numerous attorneys NOT to do that. Our BK attorney said we could walk away. But if they for close, they could be another 3-4 years to get it out of our name. Plus we have had good history with them. They had been very nice over the phone. Should we negotiate with the 2nd mortgage to see if they will settle for 10 cents on the dollar ($4k) and try to sell the house? We would probably break even after closing costs. We may have to pay a little out of pocket to cover the rest of the loan. We owe $119k on the house. Zillow shows a zestimate of $107-110. They wouldn't make anything after the other is paid off. We are so confused and thought we have been doing the right thing all these years. We live in AZ. ANY help would be greatly appreciated. Everyone we talk to has turned their backs and we feel abandoned and stuck. We have established our credit amazingly. I have a 720 FICO and my husband has a 700 now. I hope there's hope out there for our family.