We address a general equilibrium model with collateralized debt, credit contractions, and financial market segmentation. Restrictions on credit access make borrower’s optimal payment strategies – coupon payment, prepayment, and default – sensitive to idiosyncratic factors, even though the only payment enforcement is the seizure of collateral guarantees. We prove equilibrium existence, characterize optimal borrower’s payment strategies, and provide a numerical example illustrating our main results. A remarkable feature of our model is that it rationalizes the prevalence of negative equity non-recourse loans.