QUESTION: I receive a notice of default today in the mail today. We have been behind in our mortgage payments for four months. Our principal loan is now $600,000; however, the market value of the house is only $450,000. Our second mortgage is approximately $120,000, as an equity line of credit (HELOC) to improve the house. We also have a sizable credit card debt in the amount of $70,000 to about 5 card companies.

I am a nurse and my husband works in construction. We used to have good income. However, my husband lost his job two months ago and my second job does not call me as often. He receives unemployment pay. Still, our combined income only averages $8,000 per month. Due to the dip in our income, we are struggling to pay our bills. If we can only get rid of our credit card payments and the second mortgage payment, I believe we can survive this recession. We have 2 children who are still studying and we do not want to give up our house. Can we still keep our house? Should I file for bankruptcy? Friends say that we will not qualify for bankruptcy under Chapter 7 because we have too much income. What are our options?