Are bad links penalized by google - or not?

Yes Google penalise you for bad links.

There is no question about this.

If you look in your webmaster tools account you will see many things that Google care about - they look where your links come from, if they are all from one low value things (like spun blog comments on .edu sites, from profile links etc..) aswell as your website (are their broken links, duplicated meta tags etc.).

They even have a 'reconsideration request' form - so that when they do penalise you, you have a way to ask them to reconsider your site after you remove the thing they penalised you for.

Many people got a message from Google (inside their webmaster tools accounts) telling them they were penalised because of their external linking practices, so there's no doubt that Google have penalised for that practice alone.

Anyone who tells you they don't just doesn't understand what's been happening.

There are several aspects to all the recent issues people have had:

1 - Many of their bad links (i.e spammy links) sources have been penalised by Google and discounted from the link value they used to provide (this is where many paid link services and tools have suffered - even in this forum there are services which are now useless).

This means that you could have ranked well before but now many of your incoming links are useless and you need to start again in a different way.

2 - Google have put more emphasis on content and quality, so small sites are not ranking so well as big ones any more because Google wants to see lots of content.

3 - If a Google person manually looks into your site and sees you are paying for links (they can look at all the fiverr gigs selling links and easily see if you bought any) - they will penalise your site.

It's very simple. Don't buy links. Don't use link spamming tools. Put a lot of good content on your site.

Andy

I believe that Google penalizes sites with bad links and deindexes you. I would rather write articles with unique content and build good links than use spamming tools so that I will easily get indexed because that technique does not last for long.

Yes Google penalise you for bad links. also if you buy backlinks they penalise you.

Quality is more important than quantity. bad quality content is bad for search engine ranking. Similarly bad quality, automated backlinks are bad for ranking in search engine.