We are in the process of short saling our home. We have been told we will receive a 1099 schedule C from the lender after the sale. What will this mean when we file our taxes next year?

Depends on the state where you are.. it is either law suit or 1099.
1-in general a BK in the same yr that you get the 1099 will save you.
2-on primary residents you mite be saved because of lots forclousers & economic stress theses days.
3-the lender will not tell you if they will or won't issue a 1099, reason they rather you shrt sale than walking away. If they won't make sure it is in writing.
4-make sure you have a forwarding address for the 1099,lot of times 1099 will go to where u'r not living any more and u'll find out about the it following yr when is too late and penalties have pilled-up.
5-no matter what.. do your home work and save your rear end.