If we short sale our California property ($200K underwater), can lender pursue us for that amount even if we did BK 7 discharged?

Chapter 7 should provide you with the protection you are seeking for protection against your lender's pursuit of any deficiency and any short sale approval letter will further clarify their terms of settlement. There will be IRS Tax Consequences to be considered, so check with your Tax Professional for any Tax Related questions. Good Luck!