You're right, it is a very big deal in Dubai, punishable by prison. Which is why a lot of people flee the country back to their country of citizenship when their contracts are violated (also very common in Dubai - they do not honor contracts).
I was in a similar situation. First I was contacted by email by a US collection agency in another state. I ignored the letter. Now, I'm being contacted by a collection agency in Dubai. There is no conclusive solution to our situation. You will get many different answers from people, lawyers included. I suppose the bottom line is you can negotiate and pay it off or hope that it goes away. But given the financial climate in the UAE, I think that this kind of thing is becoming more rampant and they are looking for solutions to these kinds of situations, such as finally considering bankruptcy in the region, which didn't previously exist.