YABVU but it's entirely Understandable. You've been through an awful situation.
Unfortunately the Council are taking the piss, because you're likely being too reasonable with them.
I was a Homelessness Manager for years. & sadly, clients who knew their rights were steadfast and kicked up a fuss were rehoused quicker. No matter what anyone tells you, that's how it goes.
(a) Make an appointment with a good housing solicitor and go for Judicial Review of your case.
(b) Go to your MP. Explain your situation produce GP letters, police reference numbers and letters etc. Your MP will contact Council on your behalf.
2 things Housing Dept absolutely hates: Members Enquiry (that's what contact from MP is called), &. Judicial Review. When those come in staff have to drop everything and deal with them as a priority. Members Enquiries and Judicial Reviews cannot be ignored.
By the way you'd win on Judicial Review because the Council have failed in their duty of care to you. This crosses over with The Childrens' Act, as they are also vulnerable living in a dangerous situation which has impacted their parents as well as they.
I'm rushing out to work in a mo so will end here but please - contact solicitor and MP today. Don't delay.
You should never have been left in your situation and caused to bid for housing. But if you say nothing you'll likely still be bidding next year. By the way visit your GP this week explain how this situation is making you and your H feel, and how it's impacting your life so negatively. It's good to have it noted ad you can refer Council to your GP too.
Yes Council can house you outside the area - These things aren't impossible. But if it's easier for them to let you sit there as a 'completed case' then that's what they'll do.