There are two ways to handle this - 1) there has to be a judgment and a court order to garnish wages. You will need to file a motion to vacate the judgment and request a new trial; 2) Perhaps it's just easier and cheaper to file a Chapter 7.
Is your ex going to issue a 1099? If yes, then there will be tax consequences. Is it possible to simply state that the amount owed remains in dispute, and you are settling for $XX.00 to simply close the matter?
Nothing good - body attachment is a distinct possibility. However, you do not have to ignore the interrogatories, you can just file a motion and request more time to respond (if you have a valid reason).
Yes. File an answer. If the case already has been decided, a motion to vacate judgment. Present your agreement to the court. Perhaps it would even be possible to file a suit against the collection agency. However, you will need a lawyer for that.