Car loan

Hi, my car failed the emission inspection, because a couple days before the engine light came on (I am sure this was caused by a pothole in the streets of NYC), so I immediately took it into a mechanic to fix. Also on the emissions printout it said that there were three engines in this make of car that were recalled, because of emissions (I called Mazda and was told yes there were but not on my car, even though the engine number on my vehicle was indeed one of the recalled engine's Mazda said it goes by the VIN not the engine number). When I picked the car up after paying $700.00 to get fixed I drove about 15 miles and the car powered out. I was on I95 and it was a very scary thing to pull over from the passing lane to the shoulder. When I stopped the car and turned it off billows of smoke came pouring out from beneath the front hood. When the smoke subsided I opened the hood and there was no cap on my coolant bottle and liquid was all over the engine. I had it towed back to the same garage. The owner now is unwilling to take any responsibility and says that I only brought it in for a tune -up even though my receipt states engine light on. Now the car is useless and I am still owe on the car several thousand dollars. I called up the loan company and told them what happened and of course they said I am still responsible for the payments.
I am unemployed and on some public assistance and can no longer afford payments. I am not sure how to proceed, because my insurance company only pays for totaled cars in accidents not mechanical. Has anyone been in a similar situation ?
Thanks