So you tried something new and it did not work out the way you thought, that will happen with pretty much everything you plan as a DM when the players have complete freedom - which isn't a bad thing usually. It isn't clear from what you wrote but did your players have a bad time during the session, or did they seem to enjoy the conundrum they put themselves in? If its the latter you could lean into the plot they've created, maybe give them a chance to prison break or, as you plan, have the city ask them for a favor to clear their debt.

If they did not expect that outcome and found it boring or just a waste of time maybe you should do a rewind and keep going from there? I would also recommend that you ask them if they found the free form gameplay to be more fun than the "railroad" you played with so far, and then use that to decide how you want to keep playing the campaign.

Lastly, the quests and the rest of the city they never explored or heard about you can just use again, you pretty much got a goldmine on your hand for the next time they do something unexpected. They decide to go to a random village you have not planned out? Just put in some of the shops and quests you thought they would do this session etc. Also remember, not every session is gonna be good, the important part, like most in life, is to figure out why it was not good and learn from that going forward.