You just realized that a check has bounced, and you’re wondering what happens next. You might be frustrated or embarrassed, and you might even be worried about legal troubles and damage to your credit. But there is some good news: As long as you don’t make a habit out of it and you make good on the payment quickly, you’re probably not looking at a worst-case-scenario.
Why do checks bounce?
A check “bounces” when there is not enough money in your checking account to cover the payment. This can happen for several reasons. Perhaps an automatic payment was deducted from your account before you expected it, your employer was slow to deposit your pay, or your account was locked up for a few days after using your debit card.
Unfortunately, it’s easier than ever to bounce checks: Paper checks are often converted into electronic checks or “substitute checks” (all it takes is a mobile phone or check scanner), and they move through the banking system quickly. Whatever the reason, if your bank says you have insufficient funds in your account, the check will be returned unpaid.
If you realize that a check is about to bounce, but it hasn’t happened yet, you may be able to prevent it from happening.
Get money into your account immediately. It can take several days for a check you wrote to hit your account — or longer if your payee is slow to make the deposit.
The fastest way to get funds credited to your account is to bring cash to a branch. If you deposit checks to your account, your bank may hold those funds for a few days (check the funds availability policy for specifics).
As soon as you realize there’s a problem, get in touch with whoever you wrote checks to. They are probably not interested in punishing you; they just want their money. Being proactive – getting in touch with the merchant or service provider instead of waiting for them to take action – shows that you really intend to pay, and it might keep things from getting worse. Ideally, you’ll do this before anybody even realizes that you wrote a bad check, but it’s still worth a shot after the check hits your account.
If your check gets deposited and bounces, it’s going to cost you. For starters, you’ll pay fees to your bank: Overdraft charges or non-sufficient funds (NSF) fees range between $27 and $35. You’ll also likely have to pay a fee to whomever you wrote check to; they get dinged for depositing bad checks, and they’ll pass those charges on to you.
After a check bounces once, your payee might try to re-deposit the check to see if you have funded your account. If not, expect to pay another round of fees.
Finally, you might face fines and penalties after a legal judgment (see below).
Your Credit Report
A bad check doesn’t necessarily show up on your credit report or lower your credit scores, but it can. Also, several databases track bounced checks (such as Telecheck or ChexSystems). If you end up with a bad record in those databases, you may have difficulty writing checks elsewhere (your check might be rejected after a cashier scans it at the grocery store, for example), and you might be unable to find a bank that will let you open a checking account. After too many bad checks, your bank might close your existing checking account.
Those databases are not part of your FICO credit score, which is the score used for most big loans like auto and home loans. But “alternative” credit scores might use that information.
If the check was for a loan payment, your credit is more likely to suffer. Because the check bounced, payment was never made, and you might end up missing (or being late on) a monthly payment. Late and skipped payments will certainly lower your FICO credit score.
No matter who you wrote the check to, it’s important to make good on the payment. If you don’t, the unpaid balance may be turned over to a collection agency, and that agency will likely report your unpaid debt to the credit bureaus, resulting in lower credit scores. Collection agencies (or even the merchant that you originally wrote the check to) might also bring legal action, and judgments against you will hurt your credit.
What are the legal consequences of bouncing a check? It is illegal to write a check when you know that it will not clear (although things get fuzzy when it comes to postdated checks).
If you don’t clear things up quickly, you may face civil (you have to pay fines) or criminal (you have to serve jail time) penalties.
The legal consequences for writing bad checks vary from state to state and depend on the circumstances. If you accidentally bounce a check now and then, civil charges (or no charges at all) are most likely. If you intentionally or habitually pass bad checks (especially big ones), you may face criminal charges. In some states, you have an opportunity to make good on the payment before charges can be filed (you might have a 30-day window, for example).
Civil charges result in extra costs, and you probably don’t have extra money – that’s why the check bounced in the first place – so it’s best to act fast. Communicate with your payee (or the agency that is collecting the money on their behalf). If they are successful bringing a lawsuit against you, you may have to pay legal fees, service charges, or a penalty based on the amount of the original check (two or three times the amount of the check, for example).
Criminal charges have a serious effect on your criminal record, might result in jail time, and are likely to come with higher fines. However, just because you’re threatened with criminal charges doesn’t mean they can successfully bring a case against you. Get in touch with a local attorney immediately if anybody mentions criminal charges. To prevail, the creditor will need to prove that the debt is really yours (which they can’t always do), and they’ll need to take action before any statute of limitations passes.
Debt Collectors and District Attorneys
Most businesses don’t have the resources to collect on bad checks. What’s more, most law enforcement agencies don’t have the resources to track down consumers who occasionally bounce a small check. As a result, private debt collection agencies end up doing most of this work.
In some areas, debt collectors partner with local law enforcement agencies: District attorneys (DAs) provide letterhead and authorize the debt collectors to use the DA’s logo, debt collectors handle the logistics of finding and contacting consumers, and they share revenue (fees and penalties) with the DA’s office.
Unfortunately, some of these “bad check restitution programs” are confusing to consumers, who believe they are getting official government correspondence. Consumers might be led to believe that the DA intends to file criminal charges (which may or may not be accurate), and they do not allow consumers to plead their case – in fact, nobody at the DA’s office has even reviewed the case. Recipients are usually intimidated and confused, and they’re simply instructed to pay the amount due (plus fees) and sign up for a financial accountability class at their own expense.
If you bounced a check and are being contacted by a debt collector, make sure you’re being treated fairly. Debt collectors, even in partnership with law enforcement, need to follow the rules set by your state, and they might need to follow the Fair Debt Collection Practices Act (FDCPA). Contact a local attorney if you’re being harassed.
Prevent Bounced Checks
You might not be able to do anything about a check that has already bounced, but you can keep it from happening in the future. Here are some ways to avoid having a check hit your account while you’re out of money:
Balance your account: The most important thing you can do is keep track of your account balance. That means you need to know how much you have and how much is about to leave your account at all times. Be mindful of any pending payments, outstanding checks, and automatic transfers out of your account. Learn how to balance your account with a variety of tools.
Keep a cushion: Even with good planning, mistakes (and bounced checks) happen. Keep extra cash in your account to help cover any surprises.
If your employer pays you late or you forget about an automatic bill payment, a safety buffer can keep things from getting worse.
Watch your balance: It’s hard to keep track of everything. What’s more, your account balance might get frozen in ways you didn’t expect (if you use your debit card at a gas pump, for example, or a deposit is held). Figure out how to easily check your account balance so that you know about problems before it’s too late. Sign up for alerts so that you aren’t caught by surprise when your account balance dwindles.
Consider overdraft protection: Overdraft protection can be expensive, but it doesn’t have to be. If you use it as a safety net (as opposed to relying on it for cash-flow) you’ll rarely pay overdraft fees. When your bank does cover bad checks, the cost should be less than bounced check fees (to retailers) and NSF fees (to your bank). You might be able to minimize fees if you use an overdraft line of credit or instruct your bank to pull funds from your savings account when your checking account has insufficient funds.
Pay with a debit card: If you keep bouncing checks, make purchases with your debit card instead (when possible). You’ll know right away if you can afford the transaction. As long as you haven’t given your bank permission to process those charges, your card will be rejected.