One of the things that you need to consider is going bankrupt because that gets rid of it. It depends how important having your credit history trashed is although I imagine it’s not good at the moment with the house repossession. You would be discharged after 12 months and after 5 years it would no longer appear on the records. To repay £42,000 even if you were repaying say, £500 per month, is going to take 7 years and the lender is not likely to want to wait 7 years.
In circumstances like this, I suggest that you speak to an insolvency practitioner. Negotiations done by an insolvency practitioner with the threat of you going bankrupt hanging over the lenders debt, is sometimes a good incentive for them to settle for a lesser sum of money.
If they made you bankrupt, they would get probably nothing. However if you were to be able to raise some money by borrowing from a friend, perhaps £5000, they may accept 10p in the pound.
What you can also do is consider a Individual Voluntary Arrangement where creditors are lumped into a pot and you make an arrangement to pay a fixed sum in respect of creditors over a period of time, usually five years. If you struggled to pay the payments under the Individual Voluntary Arrangement (IVA) then your only alternative would be later bankruptcy.
It isn’t something that I would recommend that you try to do alone, but I would urge you to speak to an insolvency practitioner will take detailed instructions from you and advise you in depth.
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