Unemployment: How To Survive

The effects of a job layoff can be major and life-changing. And if you own a home and find yourself struggling to make your mortgage payments, you may even wonder if there's a point at which you'd just mail your house keys to the bank. If you haven't already done so - file for unemployment.

Is it ever a good idea to "walk away" from a mortgage?

For all too many Americans this isn't even a question - they simply can't come up with their payment this month. But others face a complex tradeoff. Perhaps you can squeak out the monthly payment but have to turn down a better job in another town because your mortgage is too far underwater for you to sell your home. Maybe you're so far away from ever breaking even on the house that you just can't stand to keep throwing money at it. Some people will find walking makes sense.

Here are the purely economic costs you'll have to weigh. First, there's your credit score. If you have a good score, it most likely will drop more than 100 points, according to credit scorer FICO, and the mark stays on your report for seven years. You'll be hard-pressed to buy again anytime soon. And you should remember that potential employers and landlords may see your credit record, although some of the stigma of losing a house may be wearing off now that we're Foreclosure Nation.

Taxes. In the past, if a lender forgave a mortgage, you typically had to pay tax on that amount. A new law offers relief from most of those federal taxes. But it's only for a primary residence, and if you borrowed against the house for anything besides home improvement, you'll still owe tax on that part. Also, depending on your state's law and your type of mortgage, your lender may be able to go after you for the money. It is uncommon, but as the recession drags on, banks may get tougher. Consult an attorney and tax professional before making a decision.

And check the rental market in your area. You may not save as much as you'd think, especially after figuring in taxes and the burden of poor credit.

I don't have much of an emergency fund if I lose my job. What do I do now?

You need backup cash like never before. It's taking people longer to find work - a middle-aged worker now can expect an average of six months to rebound from a layoff. And if you have a very senior position it could take longer. So ideally you should have a year's worth of expenses saved. You also want to take a hard look at your 401(k) and IRA investments. Tapping retirement accounts for living expenses should be your very last resort, but if you have little or no other savings, you might want to consider these as emergency sources of cash.