Don't for one minute think that you've not been brave. The fact that you did fight back until you got the shortfall reduced to £2500 is an achievement in itself.(posted 8344 days ago)As you said in your posting, these events have affected your health and affected those around you. For your own sake and that of your family its time to settle, and thats 'settle' not 'give up'.
You'll have ended up having to pay something even if events had gone all the way to the bitter end. Your lender and their advisors know that they would have had a hard time proving their case, and although they've saved themselves embarrassment in court by you agreeing to settle, you've given them a hard time in return.
One thing I would suggest, and you'll probably need a solicitor to draw this up, is that rather than having a letter worded by their solicitors saying that the matter is closed forever, have a "deed of settlement" drawn up (it'll be worded in your favour then). Also, do as Terry did and make them remove all traces of the debt from all the credit reference agencies.
Once you've got your 'clean slate' you'll feel so much better and you'll have a life back. Enjoy it and make up for all the time you lost!