Ever wonder what happens if you bounce a check?
Although checks might seem to be a relic of the past, there are still enough companies slow to adopt modern payment technology. Therefore, we might feel as though we need to keep a box of bank-labeled IOUs on hand, just in case. However, a problem may arise when because the money from a check doesn’t leave our accounts right away, making them a bit harder to track.
Harder to track can mean a bounced check. And that could mean fees, frustration, and possibly even worse. Read on to find out what really happens when you bounce a check — and what you can try to do about it.
What Happens When You Bounce a Check
A check “bounces” when someone tries to cash it and the transaction gets rejected. This can happen due to insufficient funds, closed accounts, frozen accounts, incorrect dates, and more. Seems straightforward enough, but the consequences of this scenario can go far beyond a simple thwarted payment.
1. Your Payment Doesn’t Get Made
You cut the check, you sent the check, the check bounced. That doesn’t just mean the payment didn’t get made. It also could mean that you don’t have enough money in that account.
Assuming you are short of funds, one way to fix this right away is to have a paycheck or other funds deposited into your account. Otherwise, you might have to pay the bill by credit card or other means (which could cost you even more money due to interest charges).
This might be one of the most frustrating things about paper checks. Unless you keep a close eye on your budget, it can be easy to spend the money earmarked for a check without realizing it. The best way to avoid this is to maintain a monthly budget and a daily checkbook register.
2. You Could Be Charged a Fee from Your Bank and Your Payee
The company you were trying to pay by check can charge you a fee if that check bounces. Your bank, however, can also charge you for bouncing a check. In other words, a bounced check could potentially cost you twice.
One way to avoid this one is to stop a check before it’s cashed if you’ve suddenly realized you won’t have the funds for it to go through. Otherwise, you’ll have to quickly transfer or deposit money into that account so the check can clear.
3. Your Account Could Be Reported to ChexSystems
You probably already know you have a credit report, but did you know you might also have a debit report? There’s a consumer reporting agency called ChexSystems which is governed by the Fair Credit Reporting Act (FCRA). According to ChexSystems, they “regularly contribute information on closed checking and savings accounts,” and “primarily assist its clients in assessing the risk of opening new accounts.”
What that means for you is that negative events such as a bounced check could cause you to be reported to ChexSystems. If repeated incidents lead to further reporting on ChexSystems, you might have a hard time getting a new checking account, and your checks can even be declined as you’re making a purchase.
Once you’re reported to ChexSystems, the incidents can live on the report for five years — even if you resolved the issue. According to ChexSystems, they’ll only remove information if, “the source of information requests its removal or ChexSystems becomes obligated to remove it under applicable law or policy.”
4. Unpaid, the Account Could End Up in Collections
Bouncing a check means the account you were trying to make a payment on will go unpaid until you send a new check or pay by other means. If that continues for long enough, your account could end up in collections.
Collections accounts can be even more serious than being reported to ChexSystems, as they can do immediate damage to your credit score. You can try to avoid collections by setting up a payment plan or other agreement with your payee before ending up in default. Otherwise, if your account does go to collections, you may decide to deal with the collections agency as soon as possible to resolve the issue before it does more damage to your credit score.
5. If Checks Bounce Repeatedly, You Could End Up in Court
It’s hard to imagine a simple mistake like a bounced check landing you in court, but it can happen. This can be especially true if you regularly bounce checks.
Certified Financial Planner Justin Pritchard reported on The Balance that bounced checks can lead to a civil suit or criminal charges. The former could be a lawsuit from a payee seeking repayment, and the latter a result of “intentionally or habitually” writing checks that you know will bounce.
According to Pritchard, you might get a small window of time to pay before the payee can sue or press charges, but it depends on the state you live in. Pritchard advises communicating with the payee if you’re facing the possibility of a civil suit. Resolving the issue beforehand could potentially help you avoid legal fees and the time and hassle of going to court. In case of criminal charges, he advises speaking with an attorney.
Regain Control of the Situation As Fast As You Can
A bounced check can feel like the end of the world, but the sooner you act, the sooner you can start making a plan to try to avoid suffering extended consequences. As with all financial difficulties, it’s important to talk to your creditors as soon as you’re aware of an issue. You might be able to work something out with them before anything else happens.
And if it simply comes down to the frustration of having to balance a bank account, then remember this process doesn’t have to be complicated. If nothing else, when you check your available balance online, remember to subtract the amount of the check from that amount every day until the check clears. This isn’t as good as keeping a register of the money flowing in and out of your bank account, but it should at least help you make sure your check will go through — or alert you as soon as you know you need to put more money in the account so it can.
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