I'd like to chime in and mention that this is literally why I never have had a mortgage.
Even if you gain significant equity, all that does is act like an insurance policy for your unsecured creditors, because the Trustee would have booted me out of my house, handed me $15,000 for it, and said go rent something, while he handed the rest of the equity over to credit cards, hospitals, and KIA.
My cousin thought that she was clever when she got life insurance money from her mom, and bought my grandmothers house, with a lot of problems. My grandmother blew the money at Macy's and then my cousin got to live in a house nobody had maintained for decades because my grandfather died in 1998 and my grandmother let everything go and was living on Toaster Strudles with extra frosting and Boost.
She ended up selling it, and losing over $12,000. When she got the money, she figured she'd boot the renters out of her other house, who had torn it up, fix the house, and pay off that mortgage. But then she worked herself into a jam and had to file Chapter 7 and then realized that all that equity is now a liability.
Some mortgage broker, who gets paid for making people broker and broker, decides how he can stuff people into a house that costs more than half what they make, when they don't even have enough savings for a down payment, then reality sets in that you can't accumulate wealth because you went for the house with no wealth.
There is an answer here and you won't like it.
Chapter 7 means your debt goes away, but almost everything is going to go back, unless you have almost no equity in your house, then you might keep it if you reaffirm the mortgage. But with no income, you won't keep it so unless you change that, you may as well get rid of the house too or you'll just end up with a bankruptcy, a foreclosure, and sued for a deficiency balance.
Both of you get fully employed pronto or tell the Trustee to liquidate EVERYTHING.
Your car is probably a lost cause too.
If you can earn enough income to rent an apartment and drive a beater, and get the family on food stamps and Medicaid, that's the way forward that I'm seeing here.
I can't even imagine trying to save a $3800 a month house in this situation, which is why we pay $1050 a month to rent. We would keep our apartment for a year on about what you pay on your house in three months. I could hold out for years even if the income stopped tomorrow, but probably wouldn't have to because there'd be unemployment checks too.
If nothing opened up in time, I would do a tactical retreat and start living with family members and we could let our lease expire, without the home plunging us into bankruptcy again.
