If I was in that situation, I wouldn't file for BK. I'd tough it out by increasing my income and decreasing my expenses and by taking steps to revamp a budget to avoid living beyond my means. Financial stress is no fun and there are always options to out-earn and out save your budget woes.
First thing I would do is sit down with my spouse and would create a written budget. My first goal would be to cut my expenses. I would look at all past statements and figure out (and get sickened by) all the money I blew on stuff I never needed. I'm motivated by negative emotion and that would certainly get me going seeing stuff or junk around the house I wish I never purchased.
For expenses...
I would cut either my cell phone or my home and wouldn't carry both if needing to cut. If I chose either, then I'd look at the plan and see if I'm using all the minutes I'm paying for and make adjustments and cuts where necessary.
If I had cable, I'd cancel that if needed, or at a minimum cut certain services. If I didn't need the internet while at home and knew I could hit a hotspot somewhere or used it at work (ahem), then I'd cancel that too.
I'd look at any insurances I had (car, home, umbrella, etc. ) and cut back if I was overinsured.
If my utilities allowed for a budget plan, knowing that this summer would be more expensive for electricity, for example, then I'd get on that to help with the cash flow temporarily.
If I had any hobbies, I'd stop them, temporarily. That is a big drain on finances.
If I had any subscriptions to newpapers, magazines, internet subscriptions (even myFICO's ScoreWatch), I'd cancel them temporarily.
If I spent a lot on gas, I'd look at alternatives to cut costs like public transportation. Getting rid of one car can save $$$ on insurance and gas alone.
If I spent a lot on drycleaning (and I do), I'd consider doing it at home if your dryer supports it.
If I had any vacation plans, I'd put them on hold. My home is more important than Mickey Mouse, IMO.
I'd rebudget the way I purchased food (one of the bigger expenses when you have a family). I'd stop eating out and dine on vintage rice and beans and PB&Js.
I'd consider extreme couponing just to save a few. IMO, there's never any reason why you'd want 20 units of deoderant, but surely there are examples out there of folks paying pennies on the dollar for food.
I'd shop around for the better rate for utilities (if possible), for daycare, for telecommunications, for insurance and so on. Also, some companies will offer you $x off if you do biz with them or bundle products. I just got a $500 check back from Allstate because I bundled my insurance with them and my car insurance is $30 less per month. Not shabby.
Finally, look at each statement carefully. Look for fees or charges that were totally unneccesary. I just discovered a $5.95/mo charge on my Wachovia checking that was for a service I never even used. The small stuff adds up over time.
Then I'd focus on income.....
AFAIK, there are 4 ways to make money in this country and maybe you read this before. You can be employed, self-employed (e.g. a doctor, dentist, plumber, etc.), a business owner, or investor. Too often we focus on one aspect of the income stream and that's our job. Unfortunately when things happen like rightsizing, our whole life turns into an upheaval. Not only look at your job for income, but diversify like you would with investments. Consider a second job. Consider a third. Flipping hamburgers at McDonalds is not beneath me if it meant keeping my home or feeding my family. Mowing laws on the weekend is not beneath me. Delivering pizzas at night is not beneath me. In fact, a part-time-20hr/wk job at minimum wage can easily net you $600/month after taxes. Could $600 help? Would you take it if offered? Delivering pizzas can get you $1k+. Also, aside from a second or third job, consider a small business on the side. If you have a certain talent or ability, then pick up some side jobs that might work in tangent with your profession. You can trade business back and forth and genreate extra income too. Also, be in business for yourself and offer to help your neighbors with their yard, snow removal (if in a cold climate), weeding, etc. My yard is a mess right now and if someone came by right now to offer to mow, I'd pay them $40 in a heartbeat.
Takes steps to get more back on your paycheck. If you got a tax refund last year (or this), you overpaid your taxes and gave a free loan to the government. Stop that. If your 1040 showed $15,000 in taxes paid for example, and got a $2000 refund, then go to your employer and redo the Form W-4 to create a fixed deduction vs. claiming one dependent, 2, 3, etc. If $15k was paid, as an example, then take the $15k and divde into that the number of paydays per year (52, 26, 24, 12, etc.), and make that your fixed IRS deduction for federal withholding. If you did get a refund, divide that into 12 months and you can see your monthly savings. Do the exact same thing for state...Also, if you are paying anything into your check like life insurance, 401(k), or other savings, then cancel them temporarily to get more on your check.
If you have any assets, then sell them off (except for IRAs or 401(k)s). Liquidate any savings. Consider only one car and sell the other to pay down debt. Look around your house and if there's junk that's collecting dust, then sell it. Make Ebay or Craigslist your friend. Get rid of old furniture, toys, clothes, etc. Get rid of any jewelry, paintings, antiques, etc.
Finally, consider trading services with family and friends. You might have a talent that you are good at and your friends and neighbors might have another. For example, I'm decent at accounting. I'll consult, for free, with certain friends and they in exchange will help me with stuff around the house I don't know how to do or don't want to do (e.g. car repairs, handyman services, lawn work, etc.). I don't pay a dime and neither do they, but we'll scratch each other's back to save $$$.
Let's say you don't have a computer, internet services, phone services, utilities, or anything that you can save on...if it came to crunch time, I would do whatever it takes to save the home. Ignore today's home prices. They go up and down all the time...it's cyclical. It'll go up again and it'll go back down again. It'll go up for sure in the coming year or two. No doubt. Don't wind up homeless. I would rank everything from what I need to what I don't need and work off those priorities. IMO, CCs would be first to go if I didn't increase my income and decrease my expenses. I'd rather have a herd of COs on my report than a BK or foreclosure. They won't sue tomorrow. THey might not sue at all, but you'd buy yourself some time (years I bet). Then I'd dump the car and let them take it if I had no other alternatives. I would never entertain BK or a foreclosure. A BK would cost you thousands, would eliminate any chance of home ownership for a long while, and you'd likely loose your car anyway.
ETA....cut up your CCs today.
