I like to post on the viewpoint that if this happened to me, what would I do. If I was in the situation, I would do the following:
1) I'd get on a written budget. I would list every single expense from the mortgage payment, to each bill, to every minimum CC payment. And I'd rank them in order from most important to least. For example, a mortgage is more important for me than a Visa payment.
2) I'd focus on income first, based on the present. I'd figure out to the penny, if possible, how much income would come in next month, and thereafter. I'd go as far as to call the unemployment office to help with calculations. If your DH has severance at his job, I'd calculate that. If you have misc. income coming in, I'd figure that out too. I would then look at November's income and compare it to December's, assuming you didn't get a new job tomorrow. I would use the lower of the two month's income as a basis for budgeting and live off of that alone, saving the rest for later. I suspect you'd get more next month than the month after and that's why I mentioned this.
3) Since your DH has a payroll check or checks coming in, at least one more anyway, I'd have him call his employer and adjust the W-4 certificate to a fixed deduction of $1. This will add more to his paycheck. It would mean you'd get less of a refund or pay a little extra in taxes on April 15, but one or two paychecks won't hurt anything. And if you got a refund this year, you overpaid anyway. Do the same for state, if applicable. You might find you'd have a couple hundred extra to work with. Also, cancel any deductions like savings, 401(k), etc.
4) I'd then focus on expenses. I would go into survival mode and eat PB&Js and rice and beans for every meal, or Ramen noodles at 1000mg of sodium. I'd do anything to cut the food expense, including not eating out or drinking Starbucks. I would also consider canceling landline phone if I have a cell. I'd cancel any dues or subscriptions that I might be paying for. I'd downgrade any insurance like homeowners, car, health, etc. I know that I can always increase it later if I wanted to. I'd cut my cell phone plan. I'd cancel cable. Of course, I'd cancel any travel plans, vacations, weekends out, etc. I know that all of these can be painful, but I'd ask myself: is cable (or insert item here) more important than my home? I would go over my bank and CC statements and go over them line by line and ask my self, :did I really need that?". If the answer is no, then I'd make sure I didn't spend there again. I know that I can always revert to my old ways if I wanted to after I have steady income and savings to boot.
5) After making a list of your income and expenses, I'd take the painful steps of assigning my income to each line item. Food might come first. Mortgage should be second, followed by utilities, car, insurance, etc. Then I'd assign whatever income value I had starting with the most important. Whatever on your list doesn't get paid, won't get paid. But stick to the budget. If little Johnny (assuming you had one) wanted to go to the movies with his friends, then let little Johnny earn his own income to go to the movies via a lemonade stand (assuming the govt' doesn't shut him down), mowing the neighbor's lawn, washing someone's car, etc.
6) Start selling your assets. Be prepared to cash in any savings or even 401(k) if necessary. I personally wouldn't mind taking a tax hit if it meant saving my house. If I had an extra car, I'd sell it, especially if one of us hadn't been working anyway. I'd sell any fun items like a motorcycle, RV, etc. (if I had it). I'd sell off anything and everything around the house like books, furniture, videos, TVs, sound systems, jewelry, etc. I'd have one big yard sale and utilize Craigslist or Ebay. You can always buy bigger and better later. My mindset would be that these items are not as important as the home. Worst-case scenario, I know that if I did have to move, then I wouldn't want to pay $$$ for moving and storing these things anyway.
7) I'd start looking for a job...both of you. IMO, in this economy, if I wasn't mailing out 100 resumes and/or job apps per week, then I'm not doing enough. If you have a serious dialog with 100 potential employers, you'll find that 5-10 would want to have an interview with you, or at least that was my experience in the past. If you are doing 3-5 interviews per week, you'll have options with regards to job choices, rate of pay, benefits, etc., and you won't have to settle for the first one you find. Have DH do the same...and it doesn't matter if it is union or not.
8) Find a temporary job. I'd find anything like washing dishes, waiting tables, delivering pizzas, flipping burgers, etc., just to slow down the damage. It might just buy you a month or two or three. I'd take anything, including minimum wage. A minimum wage job at 30 hours per week part-time would gross you over $1200 per month. That almost covers your mortgage. Have DH do the same. When not working, interview. No job would be beneath me.
I bet if you did the above, within a month, you'll be 100% better off than you were last month, monetarily and job-wise.
If it came down to defaulting, I'm partial to letting one CC slip at a time. If in a DMP, there's a high chance you'd be marked late anyway. I'd rather default if I knew that I could repay the debt in 60-90-120 days. But after doing the above, I'd swing the payments to the CCs if at all possible. I'd also consider a short sale, if it came down to not affording the home. But I'd only consider defaulting or short-saling if I exhausted ever option.
DW and I are going through some junk too. I know it can be rough. We did quite a bit of the above and it's amazing how bad we mishandled our finances sometimes.
Be sure to check out Hauling's post:
FTC website: Knee Deep in Debt
