> Sure, but wouldn't be better for most people in this situation to simply default on their current debt

You say that, but, in a year or two when your rent has gone up so far that you have to move, you're looking at awful credit. Then how do you get into an apartment where they do credit checks and they see you've got awful credit. Those apartments will either charge an arm and a leg in security deposits, or deny you.

That's a hit to your pride. Who wants to give up like that? And in more practical terms, how does that help with your problem this week? Now you have a broken car and zero ability to get non-predatory credit.