A couple of things, the major being removing all these global variables.

You can do that with something like:

on *:TEXT:*:#: { 
  badword $1-
}

And later use it as such in the alias like:

alias badword {
;Looks how many lines is in your text file
  var %lines $lines(badwords.txt)
  var %s 1
  while ( %s <= %lines ) {
    if ($read(badwords.txt, %s ) isin $1-) {
    ;....continue code

What I'm really trying to suggest is your usage of global versus local variables (/set versus /var).

Hope that helps!