What to tell creditors

Have you tried to call any of the companies and tell them your situation? Sometimes with the credit cards they can put you on a special program that will help you. But yet it all depends on who you have your cards through, some of them just won't budge. If you are paying on the medical collections, call them and let them know that things have changed and that you need to lower your payment for a couple of months. The most important things is to stay in contact with the ones you are paying and let them know your situation and what you think you can afford. And put your house payment first and then try and work the rest in after that.

debt settlement may work for you - most credit card companies will settle for 35-50% of what your owe them if you are severly delinquent. I've done very well settling my debts myself and think that if you have the money to do it now, your credit is already a mess, it may be the best option. After 24 months your credit will rebound and there is no bankruptcy on your public record.

I sure do hope the housing market does rebound. Hubby is slow too which helped add to our debt stress. To answer your question, you are at the point where creditors do want to deal. Since you don't have the funds in hand yet, you could start talking to them to feel them out and see what they will accept. I have read that some like Citi will break your settlement up in payments too so it is easier for you. At least you can start the negotiations before you get the funds to at least you will know where you stand.

I haven't settled any cards so I have no experience in that area BUT I had considered going that route. There are many on here that have settled and have written about their experiences and how they settled. Check out the blog section or keep reading here.
Hang in there.