took the first step

Ok--help please---I have stop ordered payments to Magnum Cash Adv. and Northway Financial. Today, Magnum offered me a settlement of still over 900 more than the principal. They sent me an email saying that I had 5 days until a national collection firm gets the account and failure to deal with them will result in the 3 credit agencies being notified and my credit ruined. Also, the words legal measures was mentioned. When I told the rep. from collections dept. that their company is illegal in TX and not even in the USA--he told me they are in the Virgin Isles, and have a base in Delaware. He also said that I must obey the laws of the Virgin Isles and Delaware regarding default. I told him that the TX Attorney General reports that they investigating this company as fraudulent with no license to operate in TX. All he could say was that they have thousands of customers here.

My question----since TX will not allow wage garnishment over payday loans, and since my employer does NOT do wage assignment, can these companies file a civil lawsuit to get a judgement against me for failure to pay?? What are my rights and alternatives credit wise?? I am not sure how far to push these people? A judgement is not a good thing and takes years to get rid of.

I know these scammers have attorneys that are crooked and eager to sue.

Please advise me what I need to do now.