...sale..what are our options? What would you do? What are our options?

We have a house with serious damage from previous floodings that the insurance won't touch.We have first and second mortgage and no equity on the house. We owe 130 000 but the best offer we get for it is 96 000. We talked to agents, inspectors and they all say we'd have to put in about 20000 to fix it up enough to break even if sell it. We need to move due to job and health issues. We have no money to fix it up, nor time to stay here till we fix it up. We tried to work with our banks for a short sale but they don't do it. What is the next step? Foreclosure? We qualify for chapter 7 bankruptcy but we don't have other debt than house mortgage and auto loans and student loans. Is there really no other way than this? We have to move out of state - how painful is it to go through foreclosure, bankruptcy etc if we're not even here anymore? So many questions. I'd appreciate if someone gave an insight because we're at our wits end. Thanks!