Faced with looming debt due to illness, job loss or a skyrocketing mortgage payment after an adjustable rate mortgage resets, many homeowners are considering short selling their home.

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.