How will debt be addressed on ethereum smart contracts?

I have been reading about ethereum since before it was mainstream or popular and immediately bought in to the idea of smart contracts.

But reflecting more recently, I cant find any information on how the smart contracts will address debt. As much as people like to say debt it terrible, it actually runs the financial system, whether it be centralized or decentralized. It allows people to purchase items that they cant currently afford, on the trust that they will pay back the lender.

Take a smart contract such as a purchasing a house. You are given a house at an address on the basis you will pay x amount of other every month for y number of years.

Initially, the wallet will not have the amount in total. So what happens one month if the smart contract runs and the wallet defaults ie has no more ethereum to pay?

In everyday life their belongings would be repossessed, sold off, assets seized, etc. But if the blockchain is anonymous, how is anything tracked?

Perhaps I dont fully understand either side of the coin (pun intended) so if someone could enlighten me that would be great!