A judge hears the case by the collection agency and the person whom they claim owes them.
The judge then rules either in the collection agency’s favor and the person has to pay some or all of the debt, or the judge rules against the agency and the agency has to stop hounding the person for the money.
If the person doesn’t show up for trial, the collection agency automatically wins.
More specifics than this is outside the scope of a 5 year old’s ability to track. Money and legal matters are complex and have trillions of variations and nuances.
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