Yes it's their way of scaring you and no they can not put you in jail.
What they can do is sue you in small claims court and win a judgment. At that point they can garnish your wages (if your State allows it), attach your bank accounts and file liens on any real property you may own like cars, boats, land and homes.
In some cases, if the contract allows it they can file charges for check fraud and theft by deception.
Finance Manager for over 11-years, 2011 edition Consumer Action Handbook.