Debtors are afforded great protection in the bankruptcy court. It is designed to give them a fresh start. Although the most recent statutory redrafts have made it more difficult to discharge debts.

Arguments can be made as to whether debts incurred shortly before a bankruptcy has been filed are dischargeable, but there are no guarantees.  I remember reading a case in which the bankrupt issued a check to a creditor while anticipating receipt of payment to cover the check it had issued to its creditor. The check for which the bankrupt was waiting never arrived, and the check it had issued to the creditor bounced. The creditor objected to the discharge of the debt on the basis of criminality. Debts incurred by defalcation are non-dischargeable. The bankruptcy court ruled that the conduct of the debtor was nothing more than bad business judgment, and did not rise to the level of criminalitry. I always wondered how the court would have ruled if the creditor had sought remedy through the District Attorney's office first before objecting in the bankruptcy court. Perhaps the bankruptcy court would have ruled otherwise if there had first been a criminal indictment of the bankrupt.

The proposal you received is the usual tactic employed by a debtor trying to avoid a bankruptcy. Unfortunately it is true. You probably would wind up with more money (not payment in full) through a settlement rather than through an award of the bankruptcy court.  You would be free to make a counter offer. Be sure to put a time limitation on the payment if agreement is reached. As an unsecured creditor it is entirely possible that your debt would be discharged completely or that you would receive pennies on the dollar in a liquidation.

This type of scenario is easier to avoid than to remedy. Generally there are signs of financial difficulty before things reach this stage....slow payment....late payments...payments for less than the full amount..refusal of the client to come to the phone to discuss payment.  When these signs appear it is time to take steps to protect yourself...reduce the amount of credit you extend...refuse to perform work until the account is brought current...terminate services..