What is the first step an illegal immigrant family should take to stay in US legally? In US 7 years, employed, 1child citizen.

It's not clear from the limited facts presented here that you, your wife, or eldest child would qualify to obtain legal status here. It's also not clear if and when you have ever held legal status or if and when it expired, or what that status was, or what country you are from. For someone who has only been in the U.S. for 7 years without a close adult US citizen relative (spouse, parent, adult son or daughter, sibling) the options are limited, particularly if present in the U.S. unlawfully for more than six months. Given these difficulties, it would be worth it for you to hold a personal consultation meeting with an immigration lawyer to explore what bona fide options are available, perhaps in the realm of a humanitarian (U, T, VAWA) visa or status. Good luck!