Most people fail to realize that by prolonging their problem, they are much further from a real solution.

With a short sale of the home the bank often tries to recoup the additional monies through a promissory note. If you have little chance of raising the monies to pay back the note, perhaps you should consider giving the home back to the bank or investor and declaring bankruptcy.

Delaying the obvious, or spending every dime now, only to declare bankruptcy later, might seem honorable right now, but one should consider the real facts. Owing $30,000 or more on a home you no longer own really hurts. If the bank demands payment in full, or garnishes your wages, bankruptcy again becomes an alternative.

If a cram-down of the mortgage could not be had the only relief for the borrower is bankruptcy. The sooner the borrower takes the bankruptcy solution, the sooner the borrower can start to re-build their credit.

If the bank simply issues a 1099-C but does not pursue collection action, it might be difficult to pay your taxes but the IRS might work with you. I have never known any lending institution to simply let a borrower walk away from money owed. Some demand a promissory note, where others will issue a 1099-C, leaving you responsible for taxes on the difference.

Either way, the bank is the loser. However, if the bank recoups no money and forces you into bankruptcy, the bank is a bigger loser.