This is when you are “upside down” on your mortgage – meaning you owe more than the home is worth – and trying to sell it anyway.

If your bank or lender agrees to a short sale, it is a much better option than either foreclosure or bankruptcy, say financial advisors.

Foreclosures and bankruptcy can both stay on your credit record for as long as 10 years.

By selling the home for less than what you owe, you may be able to salvage your credit rating and walk away from a mortgage payment that is sucking you deeper into a monetary black hole.

A short sale is considered a better option than foreclosure where your home is taken away from you by the bank or lender and your credit is ruined at the same time.

Not always, but often, the bank or lender will forgive the difference between what you owe on the house and what you get for it when sold. In some states, the bank or lender must legally forgive the remaining debt. But in others, the bank may get a court order asking for eventual repayment of the difference owed. It is worth checking with the laws in your individual state before considering a short sale.

In addition, short sales can still affect your credit scores unless you convince the bank not to report them as negative activity.

However, during negotiations with your lender to agree on the terms of a short sale, you can insist that any remaining debt be forgiven and that any missed mortgage payments not be reported to the credit reporting agencies.

Ironically, a lender won’t usually consider a short sale until you’ve actually defaulted on your mortgage payments. And most lenders won’t agree to the sale if they think they can get more money out of foreclosing your home.

If you are considering a short sale, you will need to contact a real estate agent, your lender and compile a list and documentation

However, before you consider short selling your home, it is best to contact your bank or lender and discuss other options that will allow you to avoid the loss of your house, such as a loan modification or revised payment plan.

The decision to file for bankruptcy is a highly personal one, based on your particular financial situation. It should only be considered once you have dug deep to tighten your budget and sought credit counseling.

Filing for personal bankruptcy has long lasting repercussions. It can affect your credit — and your life — for as long as 10 years.

It can hurt your ability get a job, buy or rent a car or home and even to purchase insurance. Employers, landlords and insurance companies are increasingly relying on credit reports to help them make decisions.

A bankruptcy filing can even make it next to impossible to hold onto your bank accounts and credit cards.

Keep in mind, if you have a steady job and just aren’t juggling your debts adequately or are living beyond your means, a judge may not even grant you a bankruptcy filing.

If you have a steady income and still can’t make ends meet despite your best efforts to do so, you may consider filing for Chapter 13, which will allow you to keep some of your belongings, such as a house or car with a 3-5 year repayment plan. This type of filing will remain on your credit report for 7 years.

If you don’t have a job or steady income you may consider filing for Chapter 7, which will allow you to erase most of your debts, but will affect your credit report for 10 years.

However, both forms of personal bankruptcy will not erase debts such as student loans, recent taxes owed, child support or alimony.

With all these warnings, sometimes filing a bankruptcy is inevitable to escape mounting debts.

If you are facing court orders that will grant your creditors the right to garnish your wages or even raid your bank accounts, then maybe filing bankruptcy is an option worth considering.

Just remember it is a last resort that can have long-lasting negative consequences on your life and lifestyle. Before it is embarked on, you should meet with an attorney or financial advisor to have them determine whether your particular financial crisis will be solved by bankruptcy filing.

The most important step to take is to contact your lender immediately. The longer you wait to do so, the more your options diminish.

People across America are in dire straits financially because of these tough economic times and many are unable to scrape up enough money for both food and a monthly mortgage payment. But by not paying your monthly mortgage payment, you are technically in default on your mortgage. State laws vary, but generally missing three months of payments is grounds for your home to be sold at a foreclosure sale or auction.

Many lenders expanded the options available to homeowners last year.

By contacting your lender early on, you may have several options to keep your home, including:

* A repayment plan that allows you to divide the late payments up and add them to future monthly payments.
* Forbearance where your payments are reduced or suspended for a period of time. At the end of this period, you resume your monthly payments as well as a lump sum payment or additional partial payments to bring the loan current.
* Loan modification where the lender permanently adjusts the terms of the loan to make it more affordable, such as extending the term of the loan, lowering the interest rate, forgiving a portion of the debt or adding missed payments to the loan balance.
* Short sale where the lender lets you sell the house for less than what you owe, takes the proceeds and forgives the remaining debt
* Deed in lieu of foreclosure where you surrender the home to the bank
* Hard money loan that has high rates and fees but may buy you enough time to sell the home and avoid foreclosure
* Bankruptcy will temporarily halt the foreclosure process and may force the lender to accept a repayment plan. Because a bankruptcy remains on your credit report for 10 years, this should be your last resort. Under Chapter 13, if you have a regular income, the court can approve a repayment plan that will allow you to keep your home.

For additional help on exploring your options, you should contact:

* A certified housing counselor who will give you advice on your options and resources, help find you free legal services and help you negotiate with your lender.
* A lawyer to review your mortgage documents.

Beware; there are many scams and temporary fixes out there trying to take advantage of people in your situation.