You should respond. They will file in court and because you did not respond, they will be awarded a judgment against you.
I had the same thing happen to us, but we had paid the debt in the meantime (between the letter arriving and the court action). We got two letters. One we had to sign for.
After the judgment was made, I got a letter from the court AND the attorneys. I copied the letter, with a copy of the cashier’s check that we paid the debt with and sent one directly to the JUDGE and one directly to the ATTORNEYS. Both were mailed Priority Mail with a Signature required. (It cost a little more to mail, but I wanted them to sign for it.) I kept all of the originals. I included a letter to the judge explaining that I had already paid the debt and the judgment should not be made against me. It should not be on my credit report.
I received a letter from both of them (Judge’s office and the Attorneys) stating that the judgment had been set-aside and will not appear on my credit report. The letter also states that I owe nothing more. There is no judgment against me. I kept all of these letters as well, in case anything comes up.
The attorney (collection agency) will sue to get the money. If a judgment is made against you, you can send supporting documentation in on your behalf. If you don’t pay, it will go against you and you will be ordered to pay. They will not hesitate to use all legal paths to get the money from you – garnishing your wages is one way they go after quickly in most cases. That happened to my brother in law.
The court order was sent to his employer and every paycheck has $$$ missing that is paid directly to pay back his debts. The court had him appear and told him the amount they would be taking. The collection agency is getting less than they wanted in each payment, so instead of paying it back in 3 years, it will be in 6 years, I think, but they got the judgment against him, it does appear on his credit report and he has to explain it every time he goes to get a loan, if they approve him (and with higher rates & fees).
They know that most people have a much harder time qualifying for bankruptcy nowadays, thanks to the new laws, so they are much quicker with going to court and suing for the money they are owed. They also know that if you do file for bankruptcy, you will most likely get Ch 13 and be ordered to repay them (even if it is not on their terms, they still get the money). Most people don’t go the Ch 7 route because you lose everything. You are forced to sell what possessions you have to repay the debts. The new laws makes it really, really hard to walk away from your debts 100%.
My advice – write them a letter, mail it with signature required and keep copies for yourself. If you have to go to court and appear, show the judge the letter. It will show that in good faith, you wrote and explained that you can only afford to pay $1 a month towards the debt, not the $10,000 they are demanding.
Paperwork trail helps. Don’t just ignore them.