It has been explained many times already
And I explained it a few times as well. The real problem is not with you not being able to pay the debt. After all, no one is forcing you to borrow bitcoins (or any other money, for that matter) in the first place, and there are quite a few defaults even with fiat loans backed by crappy collateral (i.e. subprime mortgages). The true real problem is that borrowers will be inclined to intentionally default in case the Bitcoin price is set to rise exponentially since they would be able to buy what they pledged as collateral and still have some bitcoins left from the loan. In other words, it would be highly profitable to default
Let me add something. It may lead to situation that borrower is no longer interested in collateral. He will be like- "Go nigga confiscate my house, I will buy a new one!"
However, the situation as mentioned by you may not arise if borrower takes loan for immediate consumption as in 80/100 cases occurs.