In reality, while nothing literally stopped a lord from defaulting on a contract or loan, it would ruin his reputation, and nobody would want to deal with him in the future. The system was self regulating, and was actually better than the modern corporate world, which is barely held in check by even the most powerful governments.
With the exception of student loans. Nothing stops individuals, corporations, or sovereign nations from defaulting on a loan except the accompanying penalty to their credit rating, which means higher interest rates in the future the next time they take out a loan and the same loss of reputation.
Of course, part of that is made possible only by modern communication.
What the existance of enforced contract law does, is it essentially makes the State the undersigner to the agreement. And since people tend to trust the State to enforce the law and contracts, as well as having the resources to ensure compliance, that makes it *much* easier for people to get such contracts. That then led to the development of capitalism as a practical economic system.
If an individual or corporation defaults on a loan, doesn’t the state generally try to take away most of that individual/corporation’s material assets to pay for it before letting them off? Bankruptcy is a pretty good deal when you *can’t* pay your debt, but I don’t think it generally lets you simply keep the money for yourself when you *could* pay it off.
If your creditors actually take you to court then yes. However, some loans are small enough that creditors would rather write them off as a loss than pay the legal fees to sue for collection. In that case, all you as a delinquent debtor have to worry about is the reduction in your credit rating.
I was in a bit of a game theory exercise years ago, and what I took from the results is that modern bankruptcy laws are for the protection of the lenders, rather than the borrowers. They allow lenders to easily recover what can be recovered (which for individuals may be nothing, but in corporate bankruptcies is usually substantial) and streamline the process of eliminating the other debts, which in turn makes it easier to price the risk of bankruptcy into interest rates and debt-backed securities.
In short, modern credit markets turn loans and bankruptcies into completely impersonal business decisions, which wasn’t the case when merchants loaned to knights and kings.