I asked a similar question. In short, no the system will not collapse if you don’t put more money into it and no, it’s not necessary for anyone to go bankrupt. The answer is here:
https://forum.freecapitalists.org/t/money-creation-in-a-fractional-reserve-banking-system-beginners-question/559/16
However the system will result in a net transfer of wealth, equal to the sum of all the interest, from the borrowers to the lenders. And in our current system, yes the lenders can pull that money out of thin air using a method roughly analogous to embezzlement (Rothbard gives quite a good analogy to grain warehouses in “The Case Against the Fed”).
However, it’s also noteworthy that the Fed generally doesn’t buy haircuts from the market when it’s buying “assets”. Instead, what they tend to buy is government bonds (i.e. more debt) - which certainly doesn’t help the equation above any. It means that the amount of debt in the system and the interest payments are mounting exponentially - which is very interesting for the Fed but a pretty crappy deal for the people. The net result of this is that each year, a greater and greater percentage of all your income taxes go directly into the pockets of the shareholders of the Fed (remember, this isn’t a public institution and those shareholders take a 6% dividend).