Advice needed - at wits end!

[Bill_IN]

Our newly built in 2006 house has been on the market for 3 yrs. When we built, I had an additional $25,000./yr income from a website that sold custom communications wiring packages for new homes. Shortly after moving in, home building went way down and so did that income, so I ended up closing the website/business after 4-5 months of no sales, and we put the house on the market at our cost.

When we built, we put approx. $17,000. of electrical and plumbing fixtures on credit cards so we could save money buying things on sale. For the next 3 yrs, after the income loss, we made our payments using savings, took out a credit line to pay off credit cards used for house building materials, then had to use the credit cards again to live while we used the credit line to help make all the payments, and borrowed against future bonus money from my employer to make payments. All the while we have dropped the price, time-after-time, to try and move our house. So over 3 years, doing this has grown from the original mortgage and the $17k on cards to being - a 1st mortgage (242,000 balance), the credit line (now $35k), and two cards now back up to max of $15k and $6k.

Our current asking price is $299,000. (we have $375,000 in the house).

What we've finally decided to do was to stop paying everyone (I've tried working to get all payments down for two years, but they won't work with you if you are making payments). It's been about 60 days now, Citimortgage couldn't/wouldn't do a loan modification because our monthly outgoing is too high! ($1,400. more in expenses than we bring in). AND, it's all because of the house that our "expenses" are too high (mortgage, credit line, and credit cards used to "finance" the house and make the payments!) .

At this point our $96k of equity is gone, and so are my next year's bonuses. The news keeps reporting that the economy looks as though it has hit bottom, even though they acknowledge a long slow road back to better.

I've tried getting a loan mod from Citimortgage. Was turned down and the investor (Fannie Mae) came back with a forebearance of half the payment ($1,000. a month for 4 months, so we could pay other things down, but $1,000. is still about $400. a month short!), and at the end of 4 months I would have to pay the arrearage back or add to the loan.

I'm planning on not paying the mortgage for 3-6 months, eventually will ask them to write off the arrearage, and use the money that we haven't been paying to anyone (been saving what I can back in cash, so they can't see it in a bank) and use that money to payoff card "settlements". Still will hurt my credit, but still better than bankruptcy too.

Here's the thing. After I get this all done (and I still want to sell and move) if the banks decide not to lend to people like me (and you) they will have to go out of business because there won't be enough people to lend too. At least that's what I believe.

Should I be more proactive and call Citi and 2nd lender, ask to pay what I reasonably can until the house is sold, and they must agree not to chargeback any shortage is short sale. And call the 2 Card companies and ask to pay them only principle for 1-2 years, then 6-8% interest after that?

Anyone have ANY advice or comments? Good or bad, I would like to hear your opinions. Please? I don't know what else to do other than filing bankruptcy. (btw - I'm 51, and we have 2 adopted kids 11 and 9)

Thanks!

btw - I'm tired and this sucks.