Okay, well, George, here is my answer.

Let's take the first thing you mentioned. You ask if you can sell your house in a short sale and stay in the house? The answer is no. Lenders are not willing to lower the amount you owe and let you benefit in any way by remaining in the property.

A short sale involves selling the property and paying costs such as lawyers, title, settlement expenses and realtor commissions. The rest of the money from the short sale goes to the lender. If there are two lenders, the first mortgage gets most of the money usually. The second mortgage holder gets a little, just enough so they are willing to release the lien they have on the property and let the buyer get clear title.

If lenders let people stay in their house while reducing what they owe, this would be called a principal reduction. Lenders are not willing to do these. Yet. Who knows, maybe they will start. But if they did, millions of homeowners will line up to get their loan balances reduced and I think the lenders would face a financial Armageddon. As if they aren't already.

So you can do a short sale and then get out of this debt. There is never a guarantee the short sale will go through. But by doing the short sale in a systematic way, you raise your chances. And as you describe things in your financial life, you leave the lender no choice. You can walk away or you can help the lender.

How short sales help the lenders

Our Fed chairman, Mr. Ben Bernanke, recently explained in a long, droning speech, how lenders face 50% losses when they foreclose. They lose money in the form of:

• lost mortgage payments
• foreclosure expenses and legal costs
• eviction expenses if they have to get you out of the house
• maintaining an empty house
• fixing up the house
• marketing it
• paying property taxes on it
• paying real estate agents to sell it

The mortgage lenders we deal with on a daily basis are brain dead when it comes to selling. They are afraid to sell a house for too low a price. As a result, when they get a house back, they end up keeping it for a long time. And paying taxes, maintenance and all the other expenses including interest on the money they have out. 50% is probably conservative, Mr. Bernanke.

Now, on the other hand, if you sell the house in a short sale, the lender takes the loss but they don't have the house back. They will end up better off than if they have to take back and then sell the house. In a short sale, you are doing their work for them. You are making a bad situation a bit better. That also gives you a bit of negotiating room, or it should, with the lender.

So the answer is, you want to do a short sale and help to save your credit and hopefully get the mortgage lenders to release you from future liability.

Short sales and credit card debt

Now it is also a good time not only to get rid of your mortgage by doing a mortgage short sale, but also negotiating away your credit card debt. I do not suggest hiring a debt negotiating company. Most of them are scams. See dangers of credit counseling and debt counselor scams

Usually, the debt negotiators get paid a percentage of your monthly payments. So they are often out to simply get you to pay and pay and pay. It is not difficult to negotiate down your debts if you have the knowledge to do so. You can hire someone to do this and pay them a percentage of what they save you, but why bother if it's easy to do this for yourself and you save a lot in the process?

I have people who are getting large reductions in their balance. And they get positive credit reporting after a period of time. The best time to negotiate all this is when you are in maximum financial trouble. Then the creditors can deal with you on your terms because you have nothing to give them and you can prove it.

Bankruptcy is always an option. I suggest you consult a good bankruptcy lawyer and then make your own decision. Nowadays, if you don't meet the means test and other tests, you may end up with court supervised finances for years, paying back a percentage of your debts in a chapter 13. A good bankruptcy lawyer can often steer you to what you need to do to meet the means test so you get a chapter 7 discharge instead.

But why do bankruptcy if you can get out from under with it, improve your credit, and rent a nice place?

I teach you how to reduce credit card debts in my home study course, Mortgage Relief Formula. The fact is that you can get your own debts down dealing with creditors mostly through the mail. It is very hard to hire someone to do this for you.

 And if you haven't already done so, please watch my video on short sales that explains how to do your short sale, keep good credit, avoid IRS tax liability, and hopefully avoid personal liability.