Per your update: Be advised that attempting a settlement prior to court with the other side's attorney is a VERY tricky thing to do, so be careful. Your best chance of settling is when you have a lump sum to pay the settlement all at once. Be sure to get a written settlement agreement from the PRIOR to making any payments. NEVER accept settlement terms over the phone without a written agreement.
IMPORTANT: Don't make the mistake of cutting a "good faith" payment to their attorneys without any sort of written agreement that they'll cease legal action...If you do this they'll simply take your money and sue you anyway. Debt collection attorneys are notoriously deceptive.
If you can only pay them a settlement in installments per month then it gets more complicated. The problem is that they will invariably want you to sign away your legal rights for any settlement agreement by signing a document that authorizes an instant judgement. DO NOT sign such an agreement or any agreement that waives your legal rights. NEVER, EVER trust any “advise” they give you, regardless of how “nice” they might seem on the phone. Remember, the are 100% against you best interests. Accepting advise from them on what to do is like Tweety Bird accepting advise from Sylvester the Cat. Also, do not fill out any questionnaires or paperwork requesting personal information for you to sign and mail back to them...They will use these documents against you if you do. Do not admit to owing the debt in writing...even if you do owe it.
If their terms for a settlement are for you to sign away your legal rights and to sign an instant judgement, then you are better off going to court.
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Your creditors are not obligated to accept a settlement and the judge will not force the creditor to take less if they take you to court and win a judgment....regardless of circumstances. The judge cannot and will not force a settlement like 25%. The judgement will at least be for the actual amount of the debt you owe.
What the judge can do for you is to set up a repayment plan the works for you....Again, the key factor is to show up in court and present your circumstances to the judge. Bring documentation of income and living expenses. ...and well as challenge any exorbitant charges the other side tries to tack on. If you fail to show up in court...the judge will grant the other side everything they want and the judgement could be 3 times the actual amount of debt.
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My complete answer for how to deal with being sued for credit card debt is at:
http://answers.yahoo.com/question/index?qid=20090806101155AAtqVxu
