I have nothing concrete to offer, other than to confirm that the Kindle software's handling of collections is, at best, awkward and obtuse.
I once had an issue with my really old standard Kindle (I still have just a Kindle, not a Paperwhite or anything newer) and there was a bit of software that could parse Collection files, but no doubt things have moved on from there.
Part of the problem will no doubt be that the Kindle will basically forget about any book that you didn't buy from Amazon, but there will still be ghost entries in the collections file, which will make it spit out the dummy and refuse to act in any kind of sensible way. I vaguely recall having to wipe the whole thing and start afresh. Which was a massive pain.