I took out a car loan that in 2007 I defaulted on a couple payments. I had lost my job and was only working part time, and barley making ends meet. I spoke with the bank on many occasions asking them to please hold off that I would address the issue in the following month (january). They stated that they would then wait for me to obtain a paycheck from my new better paying job. But then in February they had sent my loan to an agency. Which I had been working with making large payments any where from $300-$800 a month to try and bring what they said was starting at about $1300 down. But after making payments such as this from February to August my loan didn't go down, and it never came out of the agency. I then got frusterated, stopped making payments such as this, and spoke with the bank demanding they take my car out of the agency. Which they never did. Now I do admit from August to October I did not make a payment at all, out of pure frusteration with my bank and the agency, I then made a $200 payment in October, they stated I had $1350 to make payment on back debt and then it would be out of the agency, now in December, I received a letter demanding the full balance due which is $12,500 or else they will bring me to court where ill have to pay the legal expense, they will guarnish my wages, stated this will hit my credit harder then brankruptcy and will sit for 21 years, and that I will never be able to have a job with finances. I am beyond my limit over this and I do not know what to do. Do I make payments on the loan still ignore the calls, and when they bring me to court at least I was making my by-weekly payments?

I am assuming you still have the car?
The issue here is that you defaulted and more than once. This will not go on your record for 21 years, but they can sue you and if judgement is in their favor they can request an order of garnishment. Judgements stay on for 10 years. Then they can take up to 25% of your check. Eeven if it's more than what your payment was. Once this happens you can request a hault to it and have to go to court. YOu can request the judge to hear your case and show expenses. This usually happens after they have repo'd the car. Because of the amount you mention I would say you have the car.

A friend's car was repo'd two years ago. She had to pay $3700 of the finance fees. She made arrangement through the court as I advised her after she had two checks garnished. Because she is single with kids the judge said she would pay $50 a month only.
She wanted to pay larger amounts, but I told her to refrain. Let them just take the $50.00. Additional fees were waived by the court anyway.

You have to try to come to some agreement with them to catch up and do not default any more.
Good luck

Thank you for your reply, If I speak with the collection agency, and want to set up payment arrangements to avoid this going forth to a court, do they have to accpet them? And If I keep making payments on the loan while they declined arrangements will this work in my favour?

It would be a wise choice, but they do not have to make arrangement. There is no law stating this. The court would decide if it comes to that.

You can continue to make payments, but the original loan holder may take their time to report and there is no guarantee as you have defaulted already.

Also, if you do this I would not recommend a check showing your bank info. Send a money order or cashiers check and keep your proof.

The original lender also does not have to accept it actually. They can return them to you.

See if you can get a loan, for lets say $10k and offer to settle. Again they do not have to. If they agree get something IN WRITING that they will accept this amoount as full and final payment including interest. They may be willing to work with you with this horrible economy we are having.

Good luck