They point out that bankruptcy law steps in to override the contractual rights and obligations of parties who freely enter into business agreements. It releases debtors from debts which they willingly took on and prevents creditors from collecting what they have every right to collect. The detractors are, of course, completely right.
Bankruptcy does restrict individual freedom.
What they overlook, however, is that fact that freedom-loving Americans, including some of the staunchest libertarians, accept some infringement on individual freedom under the right circumstances. Laws which prohibit the offenses of larceny, embezzlement, and false pretenses undeniably restrict individual freedom. In this country we are not free to steal, yet we universally accept this limitation on our freedom. The reason why is self-evident. To steal is to seriously restrict someone else's freedom to own and control property, without that person's consent.