What You Need to Know About Bounced Checks

Writing a bad check is illegal, and it can have serious repercussions on your credit. Find out more about writing bad checks, what the penalties are, how to avoid it and what to do if you accidentally bounce a check.

What Is Writing Bad Checks Called?

If you write a check and there isn’t enough in your account to cover it, it will be returned to the person or entity who tried to deposit it. This is known as bouncing a check. Bounced checks are also called rubber checks, and the technical finance term for this situation is called non-sufficient funds, or NSF.

What Happens If You Write a Check With Insufficient Funds?

If a check is presented to your bank and your account doesn’t have enough funds to cover it, the bank will check to see if you have a provision in place for this type of scenario. Some banks let you tie a savings account to your checking account or apply for overdraft protection so that NSF checks are paid and you can correct the negative balance afterward. If this isn’t the case, the check is denied.

The check is then returned to the bank where it was deposited, and that financial organization notifies the person or company you wrote the check to. Bounced checks can become expensive because your bank will probably charge you an NSF fee ranges on average from $20 to $40.

The person you wrote the check to may also be charged by their bank, which is why most companies charge you an NSF fee too. That fee can be $10 to $50, depending on the state where you wrote the check.. You can see how a bounced check in the amount of $30 can easily end up costing you double or more once all the fees are handled.

Plus, the expenses related to a single bad check can snowball. Consider the example below.

Someone has $200 in their account. They write checks for $215, $40 and $30 because they have made a mistake on their books and believe they have $400.

The bank presents the $215 check first, wiping the account down to -$15.
The $40 and $30 checks, which otherwise would have cleared, are presented after this and also bounce.
The bank charges $30 per NSF event. That’s a total of $90.
The account is now -$175 in the red, and the individual hasn’t even addressed the additional costs of squaring the bounced checks with the other party.

How Does a Bounced Check Happen?

There are a lot of ways to bounce a check, including:

Forgetting to enter a purchase or automatic withdrawal in your checkbook, so you think you have more money in the account than you do
Your spouse forgets to tell you they used the debit card that’s tied to your checking account
You don’t balance your checkbook
You write a check expecting to be able to make a deposit before it clears or simply knowing you don’t have the money to cover it
Your bank or credit union makes a mistake and your account shows less money than it should
Someone writes a check to you, you deposit it and it bounces, which throws off your balance and also causes you to be charged fees you aren’t expecting

What Type of Legal Penalties Exist for Bounced Checks?

There are different laws in each state that outline regulations for bounced checks, both for civil and criminal penalties. Civil penalties—those that address how much bad check recipients can collect to cover returned check fees and other charges—can often exceed the amount of the original payment.

Under criminal penalties, you can be prosecuted and even arrested for writing a bad check. A bounced check typically becomes a criminal matter when the person who wrote it did so intending to commit fraud, such as writing several bad checks in a short time frame knowing there is no money to cover them. This can be seen as a felony in many states, especially when the checks are for more than $500.

It’s important to note that provision is made for accidents, because bookkeeping mistakes do happen. Every state has a number of days that the person or company holding the check must wait before taking legal action. If the person makes good on the check via a money order or cash payment within that time period, criminal legal charges may be avoided.

Writing Bad Checks Can Land You in Collections

If you don’t take care of any amount due associated with a bad check you wrote, the amount can be sent to collections. It’s considered a legal debt you own, and this type of collection activity can be a very negative item on your credit report. But you do have some rights.

In 2015, the Consumer Financial Protection Bureau took action against a nationwide debt collection group that was using deceptive, illegal intimidation tactics to collect on bounced check debts. Under a law passed by Congress in 2006, which regulated check diversion companies, these companies aren’t allowed to contact consumers until a prosecutor has reviewed the case and deemed the consumer eligible for collection. “The law also requires these companies to inform consumers of certain rights, including their right to dispute allegations of bad check violations,” according the CFPB.

If you don’t believe the amount someone is trying to collect is correct, you can ask them to verify the debt. Send a certified letter requesting verification of the debt right away and keep a copy for your records.

Does Writing Bad Checks Hurt Your Credit Score?

Bounced checks don’t usually show up on traditional credit reports unless you’re sued or the balance is turned over to a collection agency. But if you write a check to pay a bill to a company that reports to credit bureaus and it bounces, the late payment may show up on your credit history.

However, these failed payments may be reported to specialized consumer reporting agencies such as ChexSystems or Telecheck. These agencies collect information about how consumers have handled bank accounts and report that information to financial institutions as well as to retailers that accept checks as payment.

Negative information remains in ChexSystems or Telecheck for five years. You have the right to check those reports for free once a year and to challenge any mistakes. If you’ve already been listed in ChexSystems and are having trouble opening a bank account, you may need to look for a bank with alternative approval criteria. You can also try a credit union, if you’re eligible to join one.

A few banks may review your credit reports provided by the three main credit bureaus—Experian, Equifax and TransUnion—before letting you open an account with them or before approving your request for an overdraft line of credit. If you’re concerned about whether you credit reports will be reviewed if you open an account, be sure to ask about the bank’s policy.

Consider keeping an eye on how your financial choices are affecting your credit by viewing two of your credit scores for free on Credit.com. Reviewing your own credit reports and scores does not affect your credit score in any way.

How Can You Avoid Writing Bad Checks?

The best way to avoid writing bad checks and dealing with the negative financial outcomes is to keep good records and regularly balance your checkbook. You can also take some of the following actions to protect your account against NSF fees and activity.

Consider signing up for an overdraft line of credit, or find out if you can use your savings account as protection if you accidentally make a payment for more than you have in your account.
Remember to include recurring debits in your financial tracking.
Keep extra money in your account to be prepared for emergencies or surprises. For example, you might keep $100 in your account but never count it in your available balance.
Monitor your accounts online and set up alerts to come to your email or phone if your balance dips below a certain amount.

Be very careful when writing checks so that you don’t end up losing money—or going to court—by writing bounced checks. If you’re responsible about balancing your checkbook and knowing when you have money to spend, your life will be a lot easier and you can avoid these problems altogether.