Since the junk is traveling at a higher speed, would it just begin to occupy a higher orbit
The orbit of the junk would still pass through roughly* the point of collision. However it would not be a circular orbit. If you are lucky the orbit may intersect the atmosphere or even the ground resulting in rapid demise of the junk, but that is far from gauranteed.
there velocities would be similar enough that an impact wouldn't be completely disastrous?
In general unplanned collisions in space are disastrous for at least one of the objects involved.
In other words, how is it possible that two objects can orbit at the same altitude with different velocities?
For a circular orbit at a given altitude around a spherical body there is a single possible orbit speed. However.
- Speed is not the same thing as velocity. Two objects can orbit in different directions. Even a relatively small difference in orbit direction can result in destructively high relative velocities.
- Not all orbits are circular, indeed most unintentional orbits won't be. In a non-circular orbit speed is traded for height and vice-versa. So at the bottom of the orbit the object is going faster than an object in a circular orbit would be, while at the top of the orbit it is going slower than an object in a circular orbit would be.
if the small object can travel at lower speeds because it weighs less.
In a purely gravity-driven scenario the weight of the orbiting object has negligible influence on the orbit unless the object in question is of mass comparable to planets.
Low earth orbits are not purely gravity driven. There is air resistance which causes orbits to decay and in general smaller objects will decay faster than larger ones because mass scales roughly with the cube of dimension while frontal area scales roughly with the square of dimension.
* in an idealised scenario it would be exactly the point of collision, but there are a bunch of secondary affects on orbits.