Right now with conventional financing, you won't requalify for another mortgage for 7 years if you go through a foreclosure. A short sale is 2 years for gov financing such as FHA or VA, but often even less than 2 years if you're going going with conventional financing.
I don't know about the specific laws of your state, but I do know that there are specific guidelines in each state for what loans are recourse and which are non-recourse. If you have a recourse loan, your lender can sue you after the foreclosure. Some states are currently offering a cancellation of debt income relief as well, when you go through a short sale- where as with a foreclosure you may receive a 1099 for your loan amount to be claimed as INCOME on your next year's tax return (again this varies state by state and loan by loan, so make sure you do your research).
As a last point, a short sale can often POSTPONE a foreclosure sale date meaning you will get to remain living in your house, without paying anything for it, for LONGER.
Take the $7000 in your checking accout, put it under your mattress, and move forward with the short sale!