Carmen Nobel
06/15/10

BOSTON (TheStreet) -- The unemployment rate has been hovering around 10% for more than a year, as 8 million Americans lost their jobs since the recession began.

While getting laid off means curbing spending accordingly, some outlayscan't be avoided -- divorce-related payments, credit card debt and mortgages. Here's how Americans are dealing with the cash crunch.

Child support and alimony

In March 2009, as the economic recession dug itself in, the American Academy of Matrimonial Lawyers (AAML) reported that 39% of the nation's top divorce attorneys saw an increase in requests for lower child support payments. In addition, 42% of AAML members reported a rise in the number of changes made to alimony payments. A year later, requests for mercy haven't slowed.

"I wouldn't say we've turned the corner on a recognizable decrease in the modifications," says Marlene Eskind Moses, president of the AAML and a founding partner at Moses and Townsend PLLC, a law firm in Nashville, Tenn. "It's still a very serious issue."

The legal process for a modification request can be harrowing, with a long period of discovery before an issue is ordered -- not to mention additional legal fees. And claimants need to keep in mind that the courts won't likely sympathize with a parent who is eschewing lower-level work while trying to replace the loss of a high-power job.

Moses already is anticipating a surge in modification requests related to the BP(BP) oil spill, as it encroaches on coastal vacation properties and fisheries.

"The Gulf Coast is going to have a huge crisis over this issue with child support and alimony, as jobs are dissipated and livelihoods are taken away,"
Moses says.

Credit card debt

Those who have some savings when they lose their job may be tempted to keep paying the full balance on their credit cards, but some experts recommend otherwise.

"My advice is to go to the minimum until you find a job, because you need to keep that nest egg," says Odysseas Papadimitriou, chief executive of credit card information company Cardhub.com.

Once the nest egg starts running out, the options are obtaining the assistance of a non-profit debt-management agency (a good option for those who are barely handling their finances but at least are still handling them); filing for bankruptcy (which results in a massive credit-score hit and a bad reputation, but offers temporary relief); or trying to negotiate a debt settlement with the creditor.

The last option requires a thick skin. The idea is to stop paying your bill until the point of a charge-off, with hopes that the creditors will cry "uncle" and offer to settle for less money than you owe them.

"Once you [cease payments], your credit card companies will start harassing you nonstop," Papadimitriou says. "It's not easy."

After the charge-off, the company may settle for as little 50% of the debt. On the other hand, the credit card company might sue, so going for debt settlement is a gamble. Debt-settlement agencies that advertise on late-night TV often tout the 50% figure, but there's no guarantee, and they charge a fee. "If it's too good to be true, it's not true," he says.

Home mortgage

One option for those who fear a layoff is job-loss insurance, which will pay your mortgage for up to a year, depending on the terms of the policy, in the event of a layoff. In some cases, the lender will foot the bill.

Toll Brothers(TOL)offered unemployment insurance for anyone who funds a loan through its mortgage subsidiary. Generally, though, it's an additional fee for buyers -- supplementing the private mortgage insurance (PMI) that protects only the lenders in the event of a default.

The problem with job-loss insurance is that it doesn't cover independent contractors, active-duty military personnel or those who already have lost their job.

For those who don't have job-loss insurance, "the best course of action is to immediately contact your loan servicer as soon as the problem arises -- and even before there is a problem with making payments," says Joe Heisler, president of the New Jersey Association of Mortgage Brokers.

Original Link: http://www.thestreet.com/story/10782499/1/after-job-loss-paying-loans-child-support.html