Filing for bankruptcy might be preferable to a short sale if you have a recourse mortgage loan and you have other debts besides your house.  A Chapter 7 bankruptcy filing can discharge the mortgage debt as well as any personal obligation for a second mortgage or line of credit (given that you’ll no longer live in the house).  Also, credit card debt, medical bills, and other unsecured debts are discharged along with the mortgage.

A short sale of your home is a sale in which the mortgage lender agrees to accept less than the value of the mortgage as repayment. The difficulty of arranging such sales, including the bank’s slow response, often causes buyers to simply walk away.  A short sale however, may be less damaging to your credit than bankruptcy.

So how do you know if a short sale or bankruptcy is your better option?  It depends on your situation.  Speak with an experienced bankruptcy attorney during the free consultation to find out.