Rear Derailleur Curled Up
If the derailleur still shifts normally, you may have nothing to worry about. It sounds like it could be a few things:


Does your rear wheel sit in a dropout, or is the length of the wheelbase adjustable front to back? If it's adjustable, it's possible that the wheel skewer bolt got loose and allowed the rear wheel to slide forward, causing excessive slack in the chain.
Your chain somehow stretched dramatically
The spring in your derailleur is shot