Right now streams don't treat timeout exception as retriable in general by throwing it to the application level. If not handled by the user, this would kill the stream thread unfortunately.
In fact, timeouts happen mostly due to network issue or server side unavailability. Hard failure on client seems to be an over-kill.
We would like to discuss what's the best practice to handle timeout exceptions on Streams. The current state is still brainstorming and consolidate all the cases that contain timeout exception within this ticket.
This ticket is backed by KIP-572: https://cwiki.apache.org/confluence/display/KAFKA/KIP-572%3A+Improve+timeouts+and+retries+in+Kafka+Streams