Writing a check when there are insufficient funds in your account to cover the amount is called bouncing a check, or writing a bad check. This can happen accidentally if you lose track of the balance in your account, or intentionally as a form of fraud. Bouncing checks can result in overdraft fees, merchant fees, damage to your credit score, and even criminal charges in some cases.
Overdraft fees
If you write a check that bounces, the bank will likely charge you an overdraft fee. This fee is typically $30-35 for each bounced check. So if you wrote multiple bad checks in the same month, you could end up paying hundreds of dollars in fees to your bank. The fee amount should be disclosed in your account agreement when you opened the account.
Some banks will allow an overdraft one time as a “courtesy”, and waive the fee. But usually this is a one-time pass, and any additional overdrafts will incur the standard fee. Banks make a significant portion of their revenue from overdraft fees, so don’t expect much leeway if you frequently bounce checks.
Merchant fees
In addition to bank fees, you may also be charged a merchant fee by the business where you bounced the check. This fee compensates the merchant for the inconvenience and administrative costs of dealing with the bad check. Merchant fees are usually around $25-35, similar to bank overdraft fees.
So for example, if you bounced a $50 check at the grocery store, you could end up paying $35 to your bank and $35 to the grocery store. That’s $70 in fees for a $50 check!
Damage to credit score
If you bounce a check to a merchant, they may report it to a service called ChexSystems. This is a consumer reporting agency specifically for bank accounts and bad checks. If ChexSystems receives a report of a bounced check in your name, it will show up on your record for 5 years.
Many banks and credit unions use ChexSystems when you apply for a new account. If you have a history of bounced checks, it makes you look high-risk, so you could have trouble getting approved. A ChexSystems record can hurt your ability to open an account at a different bank if you get flagged for excessive overdrafts at your current institution.
In addition to ChexSystems, bounced checks can also show up on your regular credit report if the merchant sends the unpaid amount to collections. This can ding your credit score for up to 7 years.
Criminal charges
If you intentionally write a bad check, you may face criminal prosecution for check fraud in some cases. This depends on the laws in your state, as well as the merchant’s decision on how to handle it.
If the amount of the check is small (e.g. under $50), the merchant will usually just ask you to pay the amount plus fees. But if the check amount is hundreds or thousands of dollars, they may report it to the local district attorney or police.
Every state has laws prohibiting various forms of check fraud. The specifics vary, but typically it only becomes a criminal matter if you intended to defraud the recipient, and the check amount meets a certain threshold. You’re unlikely to face jail time for an accidental bounced check, but check kiting schemes can lead to felony charges.
How banks process bad checks
When you deposit a check, the funds are made available quickly – usually within 1-2 business days if it’s from an account at another major bank. This is to accommodate people who need access to the money right away.
But it takes longer for the check to fully clear and post to your account, generally 3-5 business days. During this time, the bank is waiting for confirmation from the check writer’s bank that the funds are legitimate.
If a check bounces after you already withdrew the “available” funds, your bank will deduct the amount from your balance. This results in overdraft fees if you don’t have sufficient funds to cover the reversal.
How to avoid bounced checks
- Keep close track of your account balance and only write checks you know you have money to cover
- Record every debit and withdrawal in your check register or app
- Don’t count on deposits becoming available right away – wait for them to fully clear
- Set up alerts from your bank to notify you when your balance drops below a certain threshold
- Link your checking account to a savings account or line of credit to cover overdrafts
What happens at the bank when a check bounces?
When you deposit or cash a check at the bank, the funds are quickly made available to you, usually within 1-2 business days. However, it takes 3-5 business days for the check to be fully processed and cleared by the check writer’s bank.
If the check bounces during that time, here is the basic process:
- The check writer’s bank determines there are insufficient funds and returns the check unpaid to your bank
- Your bank deducts the check amount from your account balance
- If this deduction puts your account into a negative balance, your bank charges an overdraft fee
- Your bank contacts you to inform you of the bounced check and fees
- You are responsible for repaying the negative balance and any additional bank fees
To avoid fees, it’s important to keep careful track of your balance and not spend money from checks before they have time to fully clear.
Can you go to jail for writing a bad check?
In most cases, you cannot go to jail for accidentally bouncing a check due to a math error or forgetting about outstanding payments. This is usually treated as a civil matter between you, your bank, and the check recipient.
However, intentionally writing bad checks can be prosecuted as a criminal offense in some cases:
- If you knowingly write a check from an account that’s closed or has insufficient funds, this may constitute check fraud.
- Most states have laws prohibiting writing bad checks over a certain dollar amount (often $500 – $1000).
- Check kiting schemes, where you intentionally write bad checks between multiple accounts, are often prosecuted as felonies.
- If you fail to make good on the checks after being notified and continue to write bad checks, this shows intent to defraud.
Jail time for bad checks is rare, but usually only pursued in cases of repeated abuse or systematic fraud. The merchant also has to file a criminal complaint rather than simply seek repayment.
How long do banks keep records of returned checks?
Banks keep internal records of bounced checks, overdrafts, and account closures for generally 5-7 years. This information is used to evaluate account history when determining eligibility for new accounts.
In addition, when a check bounces the merchant or payee has up to 5 years to pursue collections or file a civil lawsuit against the check writer. The account holder is legally responsible for repaying the amount owed.
Bounced checks may also be reported to consumer reporting agencies like ChexSystems, which can keep them on your record for up to 5 years. Other banks may deny your applications for new accounts during this time due to the negative history.
On your formal credit reports (Experian, Equifax, TransUnion), unpaid debts from bounced checks can stay for up to 7 years before automatically dropping off.
Can merchants legally pursue a bad check?
Yes, merchants have a few options for going after the money owed from a bounced check:
- They can re-deposit the check. Sometimes checks bounce due to a temporary lack of funds that gets resolved.
- They can charge a returned check fee (typically $25-$35). This fee should be disclosed at the point of sale.
- They can send the unpaid amount to collections, which dings your credit report.
- They can file a civil lawsuit for repayment. There is usually a 3-6 year statute of limitations.
- In some cases, they can file criminal charges for intentional check fraud.
Before taking legal action, the merchant will usually send a notice demanding repayment of the amount owed. If you make good on the check, including any fees, they typically will not take further action.
Do businesses have to accept payment for a bounced check?
No, there is no law requiring a business to accept repayment for a bounced check after the fact. Their policies may vary on whether they will accept a late payment.
Some businesses may be willing to work with you, especially if it was an honest mistake and you have funds available now. But others may refuse payment at that point and instead insist that you pay any fees they incurred plus collections costs.
Legally, it is within their rights to refuse payment on the original bounced check if they wish and instead require you to cover the balance and fees through alternate means.
Can you dispute a returned check fee?
Both banks and merchants have the right to charge a returned check fee, which is typically in the $25-$35 range. However, the fee amount should be reasonable and proportional to their administrative costs.
You may be able to dispute an exceptionally high returned check fee in some cases:
- If their stated fee policy is $30, but they charged you $50 without notice, the additional amount could potentially be challenged.
- If they attempt to charge multiple return fees for the same item, the redundant fees may be disputable.
- If there is an error and you never actually bounced a check, the fee itself should be reversible.
However, in most situations where you did in fact overdraw your account, standard returned check fees around $30 are normal and generally not disputable just because you don’t like paying them.
How are bad checks reported?
Bounced checks are primarily reported in two ways:
- ChexSystems – Specialized consumer reporting agency for bank accounts. A bounced check will show up for 5 years but won’t impact your standard credit score.
- Credit reports – If the amount goes to collections, it can appear on your Equifax/Experian/TransUnion credit reports and lower your scores for up to 7 years.
The check recipient usually has to initiate the reporting process – banks don’t automatically report all overdrafts. Paying off bad checks quickly can help minimize damage to your records.
How to remove a bad check from ChexSystems
If a bounced check gets reported to ChexSystems, here are some ways to try removing it:
- Pay off the amount owed. This allows the merchant to submit an updated report showing the debt was satisfied.
- Negotiate with the merchant. They have the power to request ChexSystems delete the entry.
- Dispute inaccurate information. If it wasn’t actually your check, you can dispute the entry.
- Wait out the 5 year reporting window for it to automatically fall off your record.
Keep in mind that ChexSystems is a consumer reporting agency with requirements around accurate reporting. Simply asking them to remove a legitimate bad check is often ineffective – work directly with the merchant to resolve it.
Should you pay a bad check?
If at all possible, you should make every effort to pay the amount of a bounced check plus any bank fees and merchant fees. Here are some reasons why:
- You owe the money legally, and writing a hot check could be considered theft or fraud.
- It prevents further collections activities that could damage your credit and finances.
- You maintain good relations with the merchant, bank, and anyone you paid.
- It reflects well on your character to take responsibility for your debts.
- In many cases you can negotiate a payment plan if unable to repay it all at once.
Ignoring and not paying a bad check often makes the situation worse. Work in good faith to repay what you owe and move on from the mistake.
Should you report someone for a bad check?
If you receive a check that bounces, it is usually recommended to report it through proper channels. Here’s why:
- It initiates collection actions to recover the money owed to you.
- Reporting creates a paper trail and evidence if future legal action becomes necessary.
- For high dollar amounts, reporting can help pursue criminal charges if it was a fraudulent check.
- It protects other merchants from accepting worthless checks if the payer has a history.
- ChexSystems reporting prevents chronic offenders from opening new accounts to continue writing bad checks.
For one-time honest mistakes on small amounts, merchants may choose to simply request repayment rather than formally reporting through ChexSystems. But reporting provides important fraud protection and debt collection assistance.
Conclusion
Bouncing checks can happen accidentally but should be avoided when possible due to the potential penalties. Maintaining careful account records, tracking balances, and waiting for checks to fully clear helps prevent overdrafts. If a check does bounce, act quickly to repay the recipient and any fees in good faith.
Chronic issues with writing bad checks may require better money management. But if it remains an ongoing problem, more serious repercussions affecting your credit, finances, and criminal record may result. Understanding the impacts provides motivation to manage money responsibly and only write checks you know will clear.