Mortgage modification nightmare?

in 2004 we bought our 1st home! we where preapporved for 350k but we went with a home for 180k. We where dumb enough to fall for a 5year ARM that started at 5% payment all together was around 1250 including escrow. Well Two years ago my wife lost her job and took a new one with 35% less pay then little over 1 year ago lost my job. Before we did have saving but that virtually almost drained out 7 months ago then we got a surprise from our BoA our mortgage company a noticed letting us know our new interest rate is 8.5% and our payment is now 1575! We quickly called them up to discuss a refinance and where shut down in a New York Minute because of me being unemployed and the home is worth 120k about 60k underwater. After being shut down the loan officer at BoA was nice enough to tell us to call a number for a loan modification. So I did.
After being on hold for 1 hour I got interviewed by a rep who went over all of my financial, then asked me to fax a hardship letter, with pay stubs, bank statement, credit card statements, W-2’s tax return over 40pages of stuff. He told me 30days they will review and get an answer. 30 days past and called back got interviewed again. This time the rep said nothing we can do I suggest you do the following
-sell your cars use public transportation
-100 dollars for food a month
-yard sales
-take money out of your 401k
-take cash advances from your credit cards

So we got a check from our credit card and deposited in our checking account that dried up quick as we had some large medical bill surface. now we are 15k in cc debt. So we called them again went over the samething and was interviewed and asked to send in pages of documents. We are current but as a result we are getting further in debt.
My uncle is renting his house nicer then ours in the spring for 1k. We are tempted to throw them the keys to this place and tell then to shove there 8.5%.

should we be chatting with a bankruptcy attny.

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