When is it Forbidden to Borrow?

The Sefer Chassidim records an interesting story of a certain wicked person in relation to the verse: “לוה רשע ולא ישלם”—“A wicked man borrows and does not repay.”
A certain person was destitute and needed money for expenses. Of course he could have asked for charity like most indigents but he shied away from this drastic step. “How can I take money from public funds and deprive a poor family?” he reasoned.
But the bills needed to be paid. Finally, when he really had no choice, he borrowed a large sum to cover his most basic expenses. He reasoned that this was better than taking charity since he was certainly not depriving those who could not afford to give. In any event, he was comfortable borrowing so this is what he did.
Day by day his loans mounted and when anyone would request money from him he would explain that he could not pay. After all, sometimes people borrow in good faith but then find themselves unable to repay the debt as planned. In this man’s case, it eventually became clear to all that he was borrowing with no real plan to pay any of it back—unless Hashem sent him a windfall, which he felt certain would definitely come one day. In that case, he would repay all of his outstanding loans and everyone would be happy with him.
But strangely, this man continued to request loans from unsuspecting prospects even though he had not yet returned a penny of his many prior debts and still had no means to repay any of the loans. When people noticed his strange behavior they confronted him. “How can you possibly borrow when you have not yet repaid such a fortune of money? Aren’t you ashamed to borrow money in such bad faith? Why not take what you can from tzedakah if you are qualified to receive it?”
But this man was unperturbed. “Is it better for me to take tzedakah and rob a poor man who has no way to support his family? This way, I take from those who don’t need the money as much and everyone is happy. And I do hope to repay the loans someday with Hashem’s help...”
The Sefer Chassidim comments: “This man is very wicked since not only does he make a tremendous chilul Hashem, he also causes people to refrain from lending other indigents who would repay their loans, making their lives much harder!”