Re: What happens now?
As my colleagues have pointed out, the certified letter could have been a lawsuit. Since you have not accepted it, you are not officially a defendant until the Court permits alternative service. You should keep an eye on the district court docket for the county in which you resided in Maryland. By checking that about once a month, you prevent a default judgment being entered against you.
There are a few important things you should know about a judgment against you, as well. If it is entered in Maryland, it can act as a lien against any real or personal property that you have in Maryland. It can, however, also be moved to your new state and can be used to force you to pay the judgment amount there. That can include garnishment of wages, seizure of personal property to be sold to satisfy the debt, freezing of your bank accounts, and the forced sale of your real estate. While the amounts are currently below $5,000, it is possible for the credit card companies to get interest that has accrued both before the judgment was entered and after the judgment is entered. As well, credit card companies almost always request their attorneys fees. You could end up with a judgment much closer to $10,000 than you might think.
There is, of course, the option of bankruptcy. That would be filed in the jurisdiction in which you reside. Some jurisdictions are more generous with allowing you to exclude property which is subject to the bankruptcy. In Maryland, the total amount that can be placed beyond the reach of creditors (including your clothing, household furnishings, and equity in your house, among other things) is around $11,000. That is not much. I am not, however, familiar with the laws that would govern your filing since you have moved.
The final bit of "happy" news that I have is that it is not unusual for a credit card company to file a lawsuit to collect less than $5,000 in debt. The proceedings are less formal than you might imagine and they are not even required to be represented by an attorney (though they usually are) for such a small amount. I have seen a number of cases in the range that you discussed.
I don't know that I have any good advice on how to better negotiate a good deal for you, other than to suggest that you try to obtain an attorney who will help you on a pro bono (free to you) basis. There are many pro bono service providers in every state. A good place to start is either the phone book (I'd look under local government listings) or take a trip to your local small claims court's clerk's office. They will be able to point you to a pro bono legal services provider but cannot offer you any legal advice themselves.
Best of luck.
