I am unsure what to do. How do you know your wife will get a loan in her own name and how do you know that you will get a 3 bedroom house for $120k? Those are assumptions.
If you can guarantee it, then I guess if it's okay with your wife, you can do it. But realize when they pull her credit and pull yours for loan approval they might see the credit card debt you want to hide.
Also realize that walking away could be hurtful long term. I am not sure but could they potentially come after you after they short sell it? I mean if they foreclose but you have say $100k in a taxable account can they come after the assets?
Someone more versed in real estate will have to answer that. If you want to do this, I would talk to a real estate attorney and ask if they can come after you. And ask if you buy a home before your house goes into foreclosure, what will happen to that current home? And if they can put a lien against you for the balance of the foreclosure.
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