Should survivors take on personal liability for a decedent’s debts?

Financially, death is like the final bankruptcy.  The decedent’s creditors submit their claims and the personal representative pays them to the extent possible with the decedent’s assets.  But, if the estate is insolvent, creditors go unpaid. 

An argument is now being made that the decedent’s survivors (i.e., family members) should be responsible for making up the difference.

In Zachary Roth, How Teresa Hatt Caused The Financial Crisis, TMPMuckraker.com, Feb. 6, 2009, the author quotes an exchange between Paul Kelleher, whose mother had recently died, and a representative of Bank of America:

Paul Kelleher: Yes, I’m calling to inform you that my mom died on the 24th of January.

Bank of America Estates representative: I’m sorry. Oh, it looks like she never even missed a payment. That’s too bad. Well, how are you planning to take care of her balance?

PK: I’m not going to. She has no estate to speak of, but you should feel free to just go through the standard probate procedure. I’m certainly not legally obligated to pay for her.

BOA: You mean you’re not going to help her out?

PK: I wouldn’t be helping her out — she’s dead. I’d be helping you out.

BOA: Oh, that’s really not the way to look at it. I know that if it were my mother, I’d pay it. That’s why we’re in the banking crisis we’re in: banks having to write off defaulted loans.

The article then describes an alleged pattern of conduct in which bank employees are “routinely encouraged to mislead customers or those calling on their behalf, and were financially incentivized do all they could to get payments.”

Despite the unethical nature of such conduct under current law, a broader question may be considered — would the economy be better off if certain family members (e.g., spouses, parents and children) were responsible for the debts of a deceased family member?  Would this cause family members to monitor each other’s spending habits leading to a decrease in the amount of defaulted loans?  Or, should unsecured credit be reduced or eliminated?  Or, should borrowers be required to maintain life insurance policies sufficient to cover all unsecured debt?  What should be done to prevent a person from escaping their financial responsibilities by dying?

Special thanks to George L. Bischoff (Attorney, New York, NY) for bringing this article to my attention.