If you are considering selling your home as a short sale, and are choosing a short sale instead of a bank foreclosure, you should make sure to read this Washington Post article about short sale debt.
It is very important to know that the debt from a short sale may follow you. Since we are still early in the history of short sales, we haven’t seen how too many of these will play out, but there is a high likelihood that creditors will come back around to slowly collect the loss over time, so that you end up paying off the short sale debt eventually. This is one ramification that will occur during a short sale, but that you will not experience if you go into bank foreclosure and then declare bankruptcy.
If you are considering any of these items, you should immediately contact your Realtor, and your tax advisor and/or CPA.