Foreclosure...deed in lieu...short sale???HELP

[Joel Fraser]

HELP...we're about to lose our home and need advice. We got into a bad loan for too much money($450,000 @ 81/2%). Our broker used stated income(said we made double of what we actually make) and we believe his appraiser inflated the worth of the house also. It was appraised at $500,000 last Summer and now is being valued at $325,000. So we now owe $450,000 and can't refinance because of the LTV ratio and our debt to income ratio. We've been struggling for a year to pay our $4,000/month mortgage-borrowing from family and maxing out our credit cards(to the tune of $35,000). We can't do it anymore! I've been calling Countrywide since Dec '07 and they kept telling us they wouldn't even talk to us about a modification or anything until we were at least 3 months behind. So we stopped paying in May '08 and now they're telling us they can't do anything because of the low value of the house and we don't make enough money!! We're looking to rent when this is all behind us since we won't be able to buy, but even rentals are looking at credit and ours is falling apart. Everday in the mail a new letter comes from our credit card companies either closing our accounts or lowering our limit because of the default on the mortgage. We have 3 small children under 10 and I'm scared to death we're about to be homeless!!! My question is...what is the best way for us to handle this with the LEAST amount of damage to our lives and credit..should we do foreclosure, short sale, deed in lieu of, bankruptcy??? And can any of this be done w/out a moderator or attorney? We don't have money for that obviously. Thank you for any help yopu can give us!!!