What is my liability under standard debt collection vs. construction debt collection and how could my bankruptcy effect it?

I owe a contractor $60,000 for rebuilding my fire destroyed home. The insurance settlement is still in the air, but, in any case, they likely will not make up the difference.

He finished the work this summer just before the bottom fell out of the economy. At the time, I was confident I could sell the house and turn enough profit that the $60,000 wouldn't be a problem. Some things have changed since then, others have not.

The insurance settlement is still not final, if I agree to the settlement, it will not cover the $60,000. At its foothill location, houses are difficult to sell in the winter in the best of times. In the present market, its questionable it could sell for a price that would cover what I owe on it, the uncovered cost of the fire and related expenses (this is one insurance company that makes sure nobody experiences a windfall from disaster), and make the contractor whole. In any case, listing the house, now, and letting it sit on the market for 3-4 months, which is very likely, is not a shrewd strategy. The 3 houses in the neighborhood that had put up For Sale signs at the earliest sign of trouble have not sold.

In the meantime, the 90 days from completion clause in the contract I was pressured into signing to ensure that the insurance payments were made within their stipulated timeframe, are up. The contractor has gotten himself a lawyer to demand payment in full, or they file suit. I've already called both the contractor and the lawyer, explained to their voice mails, in brief, the situation (which the contractor was fully aware of 90 days ago), but have had no response.

I hired an independent adjuster, to handle my claim since it was clear from the beginning that the insurance co. was going to be a hard case. The contract I signed, with the adjuster present, is very clear that the agreement is between the contractor and I, neither the insurance co., nor the mortgage co. are intended interests, but it lacks some of the language specified by the Construction Regulations in the contractror's state. That being said, the regulations in my state seem to be even less prescriptive, and more pro-contractor, with the exception that the contractor must be registered. I am in the process of checking on his registration, but they don't make it easy.

The reason for the additional cost of rebuilding, is in part due to the insurance co's insistance that the house was 60% destroyed, and the builder's equally strong claim that he had to bull doze the entire house if he were to meet the insurance payment deadline. In any case, I knew of the difference before I signed the dotted line, and was aware that, in all likeli-hood, the difference would end up being out of pocket from me, at least in the near term.

The reason for my confidence then, and lack of it, now, is that my bank statements say I am just as qualified for a buy-out as are the banks, the car industry, and the rest of corporate America. If the contractor insists on pushing a lawsuit, I am also just as likely to file bankruptcy as they, but with much less first party responsibility for the conditions that cause me to do so.

I am willing to work with the contractor on payments, I have what's left of my IRA money I can borrow, but he would still need to wait for a substantial portion, one third to one half, of his money until the spring, maybe longer if I can get him to wait until the market will support the sale of my house.

My question concerns my options. There seems to be quite a bit difference between standard debt collection practice and that of the building industry. There is also the question of the difference between the contractor and the adjuster's state regulations, and those in my state, and the familiarity they have with both.

I had assumed the contractor could file a lein, but was unprepared for a full law suit. What am I missing here, and what are the differences in potential consequences to me?