what is a fair settlement to offer?

It really depends on what you are comfortable with that won't break you. Did you ever DV the CA who holds this account and by any chance was this payment arrangement in writing?

If they did properly validate do the amounts match up with your own records or recollections?

How old is this? When was the last time you made payment before you were making payments to the CA?

Be careful with whatever you do offer, because the CA will file a 1099c on the remaining balance and you will owe on it in your taxes.

If they didn't validate or you never sent a DV, if you think they are collecting the wrong amount and it is old, they may not be collecting the correct amount and may have padded it.

You can follow it all the way to court, ask for all the validating documentation in Discovery and if they fail to produce it, file a motion to compel.

Then you can simply tell the judge you do not understand why they even brought the suit against you, that you were making on time payments per the agreement you had with them (make sure you bring proof of your payments). The judge may just set the order at the payments you were currently doing anyhow, and that is if they can properly validate..if they can't you can motion to dismiss and don't have to pay them at all since it is unclear on if they own the account or are collecting the correct amount.

I did DV this #1 reason was because they wanted us to sign a confession of judgement paper and we didn't feel comfortable doing that. They're response to the DV was several photocopies of our old statements and quote of the Chaundry case. I didn't feel like pushing it any further because one they were moving quickly on this and two it is our debt. The debt is not out of SOL we defaulted back in 2007. I forgot about them filing a 1099c, but I'm not paying for their costs of filing the suit, we were making payments and had done so on time for 2 months, that was their choice and and don't think we should foot the bill for it. As far as an agreement in writing, they did send a letter with the confession saying we would make these payments by the 11th of each month which we did, I don't know if that would be proof enough of an "arrangement" or not. I do have photocopies of the cashed checks we've made to them.
I could just let this go until the court date, but in our state we are required to meet with a mediator before you see a judge, my husband is a bit of a "hot Head" and if we can get this settled before it would be for the best. As far as what we can afford I'm planning on our tax refund on Jan 31. I just want to figure a flat amount to pay this I don't understand how they are figuring their amounts, I would like to just take the original amount minus off the $250 we already paid and call it good.

well, let me ask you--are they still cashing your checks? you mentioned that the balance has pretty much been frozen, but in the meantime, you have still been making payments. Are they applying those payments? it sure doesnt look like it to me.

its good that you will be with a mediator set by the court. At that time, bring all the canceled checks showing that they are cashing them. also, bring that letter you have from them showing that they were plenty willing to accept $50 a month. that combined with the actual checks will show that you have made effort in good faith to pay this off. if it were me, at that time, I would definitely argue against being made to pay their court costs and legal fees. i would say something like this:

this letter shows that we worked out an agreement to pay this debt off. These checks prove that i held up my end of that agreement. therefore, the plaintiff in this case was hardly forced to sue us to get their money. And while it is their right, I refuse to pay any of their court costs or legal fees, since they were getting paid just fine without having to incur those expenses. it was not necessary for them to incur those costs, and it isnt right to try to make me pay them simply because they got greedy and wanted a judgment. had they just held their water and cooperated with the agreement that THEY found to be acceptable just months ago, this never would have happened and they would have been paid each month, on time, without the hassle.
I would then question why the outstanding balance as they claim it has not changed despite the fact that they are still cashing the checks each month. They certainly have no problem taking your money--it is not legal for them to do so and then not apply it to the balance.

thanks for the tip skydivr! And yes, they are cashing the checks, I have been getting photocopies from the bank as each check has been cashed.