Under certain circumstances you can strip away the unsecured portion of the debt and discharge it or pay it off pennies on the dollar. The bankruptcy jargon for this is "lienstripping". It is also sometimes referred to as a ""cramdown"".
You can only do it in a Chapter 13 (or 11). You can not lienstrip in a Chapter 7 under the 1991 US Supreme Court case of Dewsnup v Timm.
Unfortunately, under the present state of the law, even in a Chapter 13, you can not liens trip if the property securing the debt is your personal residence. There was a bill in Congress that would have changed the law and allowed lienstripping for your personal residence. But unfortunately it was defeated in April.
But here's some really good news: If a mortgage (usually a 2nd mortgage) is wholly unsecured we can ask the court to treat the entire amount due on the 2nd mortgage as an unsecured debt. You can then partially or fully discharge that portion of the debt in the Chapter 13 plan that we submit.
Let me give you an example of what I'm talking about: Assume your home is worth $350,000. Assume the balance on the 1st mortgage is $360.000. Also assume there is a 2nd mortgage on the property with a balance of $20,000.
The 2nd mortgage is said to be "wholly unsecured" because if the holder of the 2nd foreclosed he would get nothing at the foreclosure sale. (This is because the 1st would have to be paid off before the holder of the 2nd would receive anything.)
He might be able to sue you personally but the security interest has become worthless because of the property's depreciation. The 2nd is wholly unsecured.
In this example, since the 2nd is wholly unsecured we can have it stripped off in a Chapter 13 bankruptcy.
Then in our Chapter 13 plan we would probably propose that you would pay little or nothing on what was previously a 2nd mortgage on your property.
The case that allows you to do this in our circuit (the 9th Circuit) is In re Zimmer (9th Cir. 2002) 313 F.3d 1220, 1222 -1225.
This is obviously a tremendously powerful tool we have at our disposal.