What happens when a person's debts outweigh their ability to pay? We currently have a system of bankruptcy that allows people to 'reset' their creditworthiness and to allow for creditors to recoup as much capital as possible.
How is a clear out different than a bankruptcy? In a clear out, or in any transaction, the right to future pref payments and the actual prefs themselves cannot be confiscated.
When an account reaches a point that it needs a clear out, the following things will happen:
The Existing prefs will be marked as 'pre-clearout'
Any payments that come in on these prefs cannot be confiscated.
An account holders existing assets will be liquidated and paid to the creditors.
Future assets cannot be confiscated.
A revised payment plan should be agreed upon via rule of law and clear out proceedings.
Only 2nd generation cash can be used to make these payments. This protects the consumer. For example, a cleared out person receives a $100 payment on pre-clear out items. They spend this on groceries getting $100 new prefs in a grocery store. Any payments from the new prefs CAN be used to pay new terms.
This plan gives the consumer a way to rebuild wealth and hopefully make the creditor whole.
What if the debtor decides to never spend money again? The pref payments will build up and then demurrage to the creditor via the prefs the creditor owns in the debtor.