You first need to confirm there is not an active collection law suit filed in court against you. Check with your local court, or if the threat in the letter is legitimate, there may be a court or case number referenced in the letter. There is an unsavory practice used by unscrupulous collectors called "sewer service". where they file a complaint with little or no regard whether your address is correct; they then allege to the court you are trying to avoid service, and the court gives them an order allowing service to be accomplished by mail. The letter may or may not be mailed, your address may or may not be correct, but the collector states to the court that they have complied with the order for alternate service, and the court then can issue the judgment if no answer is filed. You are left with the only defense the court hears a million times from debtors - "I never got anything in the mail!" So rule out an active suit before you look into whether the collector has violated the FDCPA, which is the federal law governing debt collections.
You should immediately consult with a Fair Debt Collection Practices Act (FDCPA) attorney. This sounds like a violation, which could result in the payment of damages to you. Threatening to do things they cannot do violates the Act, which also provides for the recovery of your attorney fees, so if you have a good case, you will not have to pay directly. But, if the threat is real, you need to know that sooner than later, so find someone who can see you next week. Most bankruptcy attorneys know who handle these cases, if you cannot easily find someone.