Mediation for Payday Loan Debt in WI

Last month, I received a notice that an old payday loan from Cash in a Flash (Oshkosh, WI) was going to court if I don't pay it. This loan is from 2002; we thought we had paid all of them off and obviously we forgot this one.

The original loan amount was $396. The company now wants $11,969.00 with fees and interest.

I called the collection agency (Oshkosh Collection and Recovery Agency, Oshkosh, WI) and said that we could only pay 10% of the total ---- $1,196. I would be able to pay $200 on Jan. 15 and the balance on Jan. 31st. The manager said that would work. I sent her a letter stating the same.

Yesterday, my husband and I were served papers for a small claims court saying we needed to go to court on 1/21/09 and they were sueing for $3,000. Neither the attorney's office nor the collectin agency is open today - it's Christmas Eve. I left a message with both offices telling them about my original agreement. I'm also going to send the letter to the court explaining that this was the original agreement.

I have 2 questions ---- are we able to take this to mediation instead of paying the whole $3,000 that they are now suing for? Also, if we go into mediation and we are able to pay the $1,000, will that still be listed as a judgement on our credit report or will it be listed as a dismissed judgement?

Any help or suggestions would be great!

Janine