Answer: The first thing you need to do is opt out of your bank’s bounced-check protection program. You may think you need to borrow money this way to make ends meet, but as you’ve discovered, it’s driving you further into the hole.

Next, rethink your participation in the debt management program. It was honorable of you to try to avoid bankruptcy, but it’s pretty clear you can’t afford to continue with this program if doing so leaves you in default on your student loan obligations. Credit card debts can be erased in Bankruptcy Court; student loan debt can almost never be wiped out that way.

If you have federal student loans, you may be able to qualify for the income-based repayment program, which caps your payment at a reasonable amount and erases any remaining balance after 10 years in a public service job (such as teaching in the public school system). Otherwise, the balance is erased after 25 years of payments. If you have private loans, you have far fewer options for repayment, but wiping out the credit card debt would free up more money to pay these loans back. Talk to your lenders to see what options you may have.

Another factor to consider is how much you’re spending on housing. If you own a home, the mortgage and related home-owning costs may simply be too much for you on your current income. Getting rid of the house in a short sale, or even letting it go into foreclosure, may be a far better option than continuing to cling to a home you can’t afford.

Bankruptcy, short sales and foreclosures are all drastic options. But some financial problems are so great that a drastic solution is the only reasonable choice if you ever want to get back on your financial feet.

Answer: Lenders have different policies on short sales, which is when they agree to let a borrower sell a home for less than what is owed on the mortgage. You’ll need to talk to yours about what’s required. But expect your credit scores to take a major hit, whether or not you stop payments first.

A short sale typically will have exactly the same impact on your credit scores as a foreclosure, according to Fair Isaac, the company that created the leading credit scoring formula, the FICO. Fair Isaac recently released a chart showing the effects of various credit score blows, from a missed mortgage payment to a foreclosure or a short sale with a deficiency balance (which is the difference between the home sale proceeds and what you owe). Someone with FICO scores in the 780 range would lose 90 to 110 points with a single skipped payment. A short sale or foreclosure would trim 140 to 160 points from that 780 score. (You can see the charts at Fair Isaac’s Banking Analytics Blog, http://tinyurl.com/3eze2a5.) Your score will plummet that far whether or not you stop making payments before the foreclosure or short sale.

You might be able to reduce the damage from a short sale if you can convince the lender not to report the deficiency balance to the credit bureaus. Short sales without a reported deficiency balance would trim 105 to 125 points from a 780 score, according to Fair Isaac. But lenders who’ve been cajoled into a short sale often aren’t in the mood to grant you additional favors.

There are some advantages to a short sale over a foreclosure. One is that you can start the long road to credit recovery sooner, since foreclosures usually take much longer than short sales. The other bit of good news: you can qualify for another mortgage faster. Lenders typically will consider you for a home loan two years after a short sale, versus a wait of up to seven years if you let the current lender foreclose.

The data, posted earlier today on FICO’s Banking Analytics blog, shows that the higher your scores were to begin with, the bigger the negative impact and the longer you’ll need to recover. Someone with a 680 score might lose 50 to 70 points from a short sale or foreclosure and need about three years to recover, while someone with a 780 FICO to start could lose up to 125 points and require about seven years to return to his or her old score.

For more details and to check out the charts of impact by score, click HERE.

Answer: You’re suggesting that everyone should have been able to predict today’s financial, real estate and unemployment situations. If that’s the case, your crystal ball is a lot better than anyone’s.

The first wave of foreclosures primarily affected people who never should have been approved for the mortgages they accepted, if sane lending standards were in place. If they should have known better, so too should their lenders. These days, however, many otherwise prudent people are getting caught in financial crunches because of high unemployment and the extraordinarily long duration of joblessness many face (the median duration of unemployment is currently over 20 weeks). And few of these homeowners are getting “bailed out.” Fewer than half a million homeowners have received permanent loan modifications through the government’s Home Affordable Modification Program.

The investor in question is considering trying to arrange a short sale of a rental property, in which the lender would accept the proceeds from the town home as settlement of the greater amount the investor owed. That’s not a bailout — there’s no government assistance involved. It’s a private contract renegotiation between two parties.

As for buying stocks on margin, remember that the investments in your brokerage account are collateral for any loan you get from a brokerage. If your account plunges in value, brokerages can and will sell equities in your account. “Bailouts” for investors buying on margin typically aren’t needed, because the brokerage usually makes sure it gets paid.

Answer: The creators of the leading FICO score haven’t revealed enough about how the formula works to predict precisely how a short sale would affect your scores. But the company has said the affects of a short sale are similar to that of a foreclosure, which would cause someone with a 780 score on the 300-to-850 FICO scale to lose 140 to 160 points. People with higher scores tend to lose more points to a black mark than people with lower scores, so you can pretty much assume that your scores will drop from excellent to near-subprime territory for a while.

Exactly how long your score will take to recover is another mystery, although you’ll start to see gradual improvements if you handle your other credit accounts responsibly. Your scores could climb back into “good” territory (over 700) within a couple of years, but you may not regain your lofty peak until the short sale falls off your credit reports in seven years.

You also should be cautious about any agreement you sign with your lender. Some short sale agreements don’t address what happens to the unpaid debt, while others specifically keep you on the hook for any deficiency balance (the difference between what you owe and the price the home fetches). Ideally, you would want this debt to be forgiven (although you may owe taxes on the forgiven debt). Otherwise, the lender could sue you and cause further financial and credit score problems.

If a short sale is indeed your best option — you can’t rent the place for what it costs you to own it, and simply wait for prices to rebound — you’d be smart to get experienced legal help.

Answer: The leading credit scoring formula, the FICO, typically treats a short sale about the same as a foreclosure, said Craig Watts, spokesman for the company that created the score, which is also known as FICO.

Where a short sale is better is when it comes to getting your next mortgage. If you suffer a foreclosure, lenders typically put you in a kind of “penalty box” that makes it tougher to get another mortgage for up to seven years. That period is typically shortened to two or three years with a short sale.

Answer: Don’t panic just yet.

Normally when a lender cancels or forgives debt, you have to include the forgiven amount in your income for tax purposes, which can result in a whopping tax bill.

But the federal Mortgage Forgiveness Debt Relief Act of 2007 provides an exception for homeowners who lose a home to foreclosure, sell it for less than they owe in a short sale or have their debt reduced through a mortgage modification.

You still have to report the forgiven debt on IRS Form 982, but it’s typically not included in your income for federal tax purposes if:

• The home was your primary residence (second homes, vacation property and rentals don’t qualify).
• The forgiven debt was $2 million or less ($1 million for a married person filing separately).
• The debt was forgiven in calendar years 2007 through 2012.

For more information, visit the IRS’ website at http://tinyurl.com/5pe43f. Details can also be found in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

You’ll have to do a little research to see what you might owe under your state’s income tax laws, which could differ. California, for example, hasn’t updated its law to conform with the federal law for mortgage forgiveness occurring on or after Jan. 1, 2009, although there are several bills pending in the Legislature to do so.

If you’re in California, you might want to bookmark this Franchise Tax Board page at http://tinyurl.com /yhx89zw and check back before filing your taxes April 15 to see if you get any relief.

Certainly, in financial distress, one’s credit score takes a beating, but I don’t believe there is a code or classification for short sales on credit reports. We generally encourage short sales when possible as we feel short sales allow a debtor to get back on their feet quicker. I’d appreciate other data if you have it, as this would change how I educate clients. I do think we may see some changes in the future. As the number of short sales increases, we may see some way to note such transactions on credit reports.

Answer: The information about how credit scores are affected by short sales comes directly from FICO, the company formerly known as Fair Isaac Corp., which created the leading credit scoring formula.

You’re right that the formula has no specific code for a short sale, which is when the lender agrees to accept the proceeds of a home sale as full payment of a mortgage, forgiving whatever additional balance is owed. But most lenders report short sales as a debt settlement, which has a strongly negative effect on credit scores.

In many cases, the borrowers’ scores were already trashed by late payments and by the notice of default, which is filed by a lender after several skipped payments. A settlement notation or a foreclosure just makes a bad situation worse.

But you may have a good point about the debtor potentially being able to bounce back faster with a short sale. The foreclosure process can drag on for months, and sometimes more than a year, with each missed payment causing additional damage to the borrower’s score. Arranging a short sale may help a borrower put an end to the credit damage so he or she can start the long road back to better scores.

What would be the downside of doing a short sale, renting for a couple of years until we could buy again? It seems like we would be able to save up while we were renting, and I can’t see house prices doubling in the next two years. What do you think would be our best option?

Answer: You’re right that home prices won’t recover their lost value any time soon. But that alone isn’t good reason to bail on a mortgage, particularly given the fallout such a move can have on your finances.

The damage to your credit will be significant. Short sales — selling a home for less than what’s owed, with the lender’s consent — typically harm credit scores as much as foreclosures do.

And these days it’s harder to recover from a serious credit blow than it used to be. Fewer lenders are willing to take chances on those with subpar credit.

You may be able to qualify for a mortgage again within a couple of years, but you’ll probably pay higher rates for all your credit for several years.

If you can’t work something out with your lender and can no longer afford the payments, you may not have much of a choice. But given the stakes involved, you should explore all your options for saving the house before you turn in your keys.