Thanks for the input! Hmm, suing for loan default isn't what we had in mind.  

I don't think that's desirable for either loan providers or recipients. I'm thinking more along the lines of incentive not to default. For example, in the real (not crypto) world people don't fear getting sued for loan default. They're more afraid of debt collection activities, bad credit ratings etc. Long ago I worked for a company that had a simple policy of sending out reminders of payment due, but the key was using attention getting colors, like red or neon labels with bold lettering saying things like "PAYMENT OVERDUE" "LATE REMINDER" etc. The idea was people don't like others believing they're not on the up and up, even if it's just the mailman.

The trick is making it more attractive to repay the loan than to default. I don't think everyone taking out a loan has intention to default. Instead unforeseen circumstances might come up and things get out of hand.