Just a thought, but: it seems to me that the underwater car loans are just the outward manifestation of the problem. Look at these things and recognize that they are just symptoms.
The real heart of the problem is that here are two people exercising poor judgment, exercising little restraint (or the wrong kinds of restraint), and engaging in impulsive behaviors rather than long-term thinking. Even if you try to help them figure out the smartest moves from here, you are likely wasting your time until they are willing to address the underlying problem.
My own mother started going down a bad path when I was still in my mid-twenties (over ten years ago). One of the biggest mistakes she made was that she *did* take out a HELOC, which she was then unable to pay back, and then wound up losing a house that she had owned free and clear after her divorce. So, I would second the person who said that the HELOC is probably not a wise move.
Mostly, my point here is, these are deep-seated problems, and they are not *your* problems. We want to help other people change for the better, or at least protect them from their own stupidity sometimes, but there is very little we can do besides hope that they will find the courage and the wisdom to turn things around. No enabling allowed from you! (Read as much as you can about enabling. It is what you *don't* want to become.)
They've got their own work to do. You've got your own work to do. I know how tempting it is to try to help family members put out fires -- I"ve been there. There is really no substitute for them hitting their own rock bottom, and then turning it around with their own hard work.
