PropBot.com - Foreclose or Refinance?

I have a couple of questions, and thought that this is a good place to look for answers. Sorry if this is long... In 1998 my wife and I bought our first house. Our credit was "less then stellar" and we didn't have 10% down. So we did a deal with a mortgage broker where we got 100% financing. One mortgage was for 80% of the loan, the other was for 20%. the purchase price of our house was $130,000. We bought the house in

March of 1998, and then in October of 1998 we went to The Money Store to get a home improvement loan. That loan was only for $13,000. The reason we did this, is because the house was in dire need of a roof (we knew that when we bought the house) as well as some cosmetic work (paint carpet, floors, landscaping, etc.).

Now, this seemed like a good deal. We figured that within a couple of years we would just re-finance them into one. Skip to August of 1999. Our first attempt at Re-financing the house. The lender tells us, that, "because the home improvement loan is less then a year old, we can't re-finance it yet." So we wait....

In January of 2000, we went to a "credit counseling" service to get our credit cards paid off. Shortly thereafter, we go to get our mortgages refinanced into one. But this time we are told that we can't, because we are in "credit counseling" which the bank see's as bankruptcy. We hell, if we can't re-finance, then we might as well file bankruptcy. The credit card companies who were so willing to take our interest payments, were not so willing to work out a deal to get their money back. So we filed Chapter 7. Now, we kept the house(3 mortgages), and both cars. But now we didn't have any credit debt. Bankruptcy was final in late august 2000.

Skip to August 2001. We were told, that we could refinance the house a year after the bankruptcy. So almost a year to the day, we go through the motions. Total of the three mortgages is $140,000 and some change. We have the house appraised...appraisal comes in at $156,000. Bank says, that because the chapter 7 is only a year old, they can only refinance 85% of the value of the house. So, now we still have 3 mortgages, and one of them bumped up their interest rate right after we filed bankruptcy. Almost as if to say... "we got you by the yam-bag now buddy!" So now with taxes and insurance, our house payment is almost $1800 a month. This is almost half of my take home in a month, and I need to get it lowered.

So now my wife and I are seriously thinking of either selling this house, or just letting it foreclose. I don't really know much about foreclosure, but I would rather not let it get to that. Selling it could take up to a year, and I don't want to wait that long. I make 60K+ a year, and have been in the same trade for close to 16 years, with 7 of those years at the same job. Where can I go for help. Can I refinance now? What happens if I foreclose and what are the legal ramifications? Any help and advice is greatly appreciated.