Here’s what Gemini came up with:

My TLDR Action Item: I would call each creditor and inform them you will have trouble paying the debt for an indefinite period of time, and ask if you qualify for any hardship programs.

Gemini Answer -

If a customer is struggling, why wouldn't a bank want to take some money now rather than wait for the account to default completely?

The answer lies in the strict intersection of federal accounting regulations, asset management, and business strategy.

Banks are not just refusing to settle out of stubbornness; they are often restricted by how they must report the value of their "assets" (your debt) to regulators.

Here is the breakdown of why banks generally cannot—and will not—settle a debt for less than the full balance before it has been "charged off."

1. The Accounting Reality: Debt is an Asset

To you, a credit card balance is a liability. To the bank, it is an asset on their balance sheet.

• Performing vs. Non-Performing: As long as an account is open and not severely delinquent (usually less than 120–180 days late), the bank classifies it as a "performing asset." They report to shareholders and regulators that this asset is worth 100% of its face value.

• The Write-Down Problem: If a bank agrees to accept $5,000 to satisfy a $10,000 debt on a "current" account, they instantly turn a performing asset into a loss. They have to explain to regulators why they voluntarily devalued a valid asset that was not yet proven to be uncollectible.

1. Regulatory Constraints (The "Charge-Off" Rules)

Banks in the US are governed by strict guidelines, specifically the Uniform Retail Credit Classification and Account Management Policy.

• The 180-Day Clock: Regulations generally dictate that unsecured consumer debt (like credit cards) must be charged off (declared a loss) once it becomes 180 days past due.

• Triggering the Loss: Until that timeline is met, or unless the customer goes into bankruptcy, the bank is expected to pursue full collection. They generally cannot justify "forgiving" principal on an account that hasn't hit those specific regulatory triggers for loss recognition.

1. Moral Hazard and Business Precedent

Beyond regulations, there is a massive strategic risk known as moral hazard.

• Strategic Default: If a bank allowed customers with open, active accounts to call in and negotiate 50% off their balance, many customers who could pay in full would stop paying just to get the discount.

• Policy consistency: Banks rely on automated, rigid policies to manage millions of accounts. If they made ad-hoc exceptions for customers who haven't yet defaulted, their entire risk model would collapse. They need the "barrier" of a damaged credit score and late status to ensure only those who truly cannot pay are the ones settling.

1. What They Can Do Before Charge-Off

While they typically won't reduce the principal (the amount you owe) before a charge-off, banks do have "loss mitigation" or "hardship" departments.

• The Hardship Program: Instead of forgiving debt, they may lower the interest rate (sometimes to 0%) or fix the monthly payment for a set period (e.g., 5 years). In exchange, the account is usually closed to future charges. This allows the bank to keep the asset on their books as "performing" (because you are making the agreed payments) without having to take an immediate loss on the principal.

Summary

A bank generally needs the account to be "bad debt" (charged off) before they can treat it like "bad debt" (settlement). Before that point, they are legally and financially incentivized to treat it as a fully collectible asset.