The extravagance itself is clearly a bit of a sign of the government taking a bit too much of the risk.Again, are you railing against the bankruptcy code here? Do you want to institute debtor's prisons? Seriously.
There are all sorts of very good capitalistic reasons for the government to "save people from the practice of freedom" and the government does so through myriad ways, the least objectionable and pernicious of which to me is providing nightly shelter for the homeless.
This isn't bankruptcy law, this is directly paying way too much to put people into homes.