As others have posted, it drops your credit rating. The view from up here in Canada is that Americans are anal about their credit score, possibly for good reason - it shows up as a factor in whether or not you get credit and what interest rate. It is used by landlords sometimes to decide whether you are a risk to rent to. It is sometimes used by employers to determine if you are responsible with money or too irresponsible to hire.
Like most scoring, it reduces complex situations to a simple number with no explanation of extenuating circumstances; perhaps “simplistic” is the better choice of word. If you plan to live your future subsistence life outside the economic system, then it does not matter. If you want a car, a house, credit cards, a place of your own, a nice job… try not to ignore it.
The other point is - “legal proceedings”" means likely that they take you to small claims court. The process is - go to small claims court, get a judgement for the debt and costs associated with you not paying it (i.e. court filing costs, etc.) With this judgment, now collection agencies can hound you - although some actually follow the US laws on not harassing debtors beyond certain limits, some don’t. If you ever plan to get married, see if the state law allows debt collectors to go after your spouse and communal property for the debt.
The first thing to do is to reply to their letter explaining your circumstances - you cannot pay, you don’t have the money. Show up in court proving that you tried to tell them they were wasting their time. Maybe that will help, maybe the judge won’t add on court costs. Then make yourself aware of the laws regulating debt collectors if they get a judgement.
If it were a really big debt, in the tens of thousands range., perhaps bankruptcy would help. here, it probably costs more and hurts your credit score more to go bankrupt.