File for bankruptcy after the short sale! It's a complicated situation with many variables but if you can wait to file for bankruptcy, wait and be sure to short sale and do NOT foreclose. That way, when you file, you start fresh. If you file before, everything stops and lender cannot perform their duty. Some times, home owners will file to delay foreclosure but this is their last case scenario. So, avoid foreclosure, short sale the home, then file for bankruptcy and start fresh! Many people are or have been in tough situations but talk with a bankruptcy attorney to help you minimize the damage.