What Happens If You Have A Bounced Check?

What’s a bounced check? It’s one among those terms that quite a lot of people have heard, but not as many can explain. And the impacts of a bounced check can seem equally mysterious!

In fact, it’s essential to know all of this stuff, so you may avoid being put in a messy financial situation. Whether you’re the author or depositor of a bounced check, it will possibly have impacts in your funds.

A lot in life is unexpected, but a bounced check doesn’t have to be one among them. In this text, we’ll answer questions like: what’s a bounced check? What happens if a check bounces after I deposit it? How can I avoid writing a check that finally ends up bouncing? Let’s start learning!

What’s a bounced check?

A bounced check, also referred to as a “rubber check,” is basically a check that can not be honored by a bank. This typically happens when the account holder has insufficient funds to cover the quantity of the check.

Less commonly, a check can bounce if the check author tells the bank to “stop payment” on it—even when there’s enough money within the account.

When someone writes a check, they’re essentially instructing their bank to transfer a particular sum of cash from their account to the recipient’s account.

Nonetheless, if there isn’t enough money within the account to satisfy this request, the check bounces. In turn, this may result in a cascade of consequences for each the payer and the payee.

Bouncing a check is just not at all times intentional. It will probably occur for various reasons, akin to an unexpected expense, a miscalculation of accessible funds, or a delay in depositing money into the account. While these situations could be real mistakes, they’ll still carry financial repercussions.

What happens if a check bounces?

Your check can bounce when the quantity in your checking account is lower than the worth of the check amount you wrote. If the receiver tries to money or deposit your check before there’s enough to cover the total amount, the check will bounce as a result of “non-sufficient funds” (NSF).

Once you write a check that bounces, you’ll probably be a bit embarrassed. While it’s not at all times your fault (possibly an automatic withdrawal happened before an automatic deposit cleared), you’ll still need to cope with the implications. 

Let’s take a look at a couple of potential things that may occur.

Possible fees

One of the immediate drawbacks of a bounced check are the fees that include it.

Non-sufficient fund fee (aka NSF fee)

A non-sufficient funds fee is precisely what it appears like. A financial institution charges an NSF fee when a check can’t be honored as a result of insufficient funds within the account. Normally, any such returned check fee applies to the account holder who wrote the check.

Each state decides the fees owed for check payments that are returned for lack of funds. These “recovery costs” generally range from $20 to $40. More often than not, you’ll pay a flat rate, but a couple of states base the fee on a percentage of the quantity of the check.

Fees for non-sufficient funds are like a nasty chicken-or-egg scenario. Should you wrote the check and truly don’t find the money for to cover the price, then with the brand new fees, you may go into debt over not with the ability to pay. That makes it even harder to right the fallacious and pay the unique amount you owed.

Merchant fees

In certain cases, merchants may charge additional fees for bounced checks. These fees are imposed to compensate for the inconvenience and potential costs incurred by the merchant when a payment doesn’t clear. 

$30 is the common bounced-check fee from merchants. That said, in most states, they’re allowed to charge as much as $40.

Overdraft fees

Should you don’t find the money for in your account, but your bank covers the check for you as a substitute of bouncing it, it’s possible you’ll face an overdraft fee as a substitute of an NSF fee.

When an account holder attempts to make a payment that exceeds their available balance, the bank may cover the difference through overdraft protection. This service is designed to forestall declined transactions as a result of insufficient funds.

Nonetheless, this service often comes with a price—the overdraft fee. This fee applies when the account balance goes below zero, and the bank extends credit to cover the transaction.

Overdraft fees can even come into play in case you deposited a nasty check and didn’t know it. You could assume you’ve more cash within the account than you really do, since the check bounced. Then, you would possibly unintentionally overdraw your account and incur a fee.

Some banks offer overdraft alerts or allow customers to link their accounts to savings to forestall overdraft situations.

Impact in your credit report & banking relationships

While your primary credit report will likely remain unaffected by your bounced check, some “alternative” checking account reporting firms, like ChexSystems or Telecheck, might ding you.

Consequently, banks can deny your request to open a checking account if you’ve any red flags from these firms. On this case, you should definitely ask for the report back to be certain there aren’t any errors. You may also ask for a free report in case you receive an “adversarial motion” notice, which the bank has to offer you in the event that they turn you down.

Since a negative banking history may make it more difficult to open latest accounts, it will possibly also make it hard to construct credit.

Within the case of a loan payment, a bounced check is a much bigger deal and will affect your fundamental credit rating. When your check bounces, it signifies that the transaction technically never went through. Unless you tried to pay early, that likely means you either missed a monthly payment or were late.

This unpaid balance could get you in trouble with a group agency, which could report you to the credit bureaus. This can be a fast track to lower credit scores.

Late payments will stay in your record for seven years, which may affect other loan eligibility and even insurance rates. Your top priority must be to get back on course along with your original payment schedule.

Potential legal motion against you

Along with your credit rating, debt collectors could mean bad news legally. Identical to the recovery fees, each state determines the legal action it’s possible you’ll face. You might be coping with civil or criminal charges, starting from a misdemeanor to a felony.

With civil charges, you’re in store for much more fees. (Do not forget that horrible cycle of being charged for having no money? It gets worse.) You may have the option to avoid these charges in case you can plead your case to the recipient before they file a lawsuit.

Should you don’t reach them in time or they aren’t sympathetic to your situation, you’ll probably need to pay legal fees for yourself and them, in addition to additional penalties.

In a criminal case, even higher fees might be in your future, together with a mark in your everlasting record. In extreme cases, you would possibly even go to jail. Often, the quantity of the check determines whether it’s prosecuted as a misdemeanor or a felony. 

If someone is threatening you with criminal charges, you should definitely seek legal counsel before things escalate.

Expert tip: At all times negotiate fees

In some cases, banks (or merchants) could also be willing to waive certain fees related to bounced checks, especially if it’s a rare occurrence.

Contact them, explain the situation, and inquire about the potential for fee waivers. Be gracious and understanding, even in the event that they aren’t capable of accommodate you this time.

Establishing a superb rapport along with your financial institution can result in more favorable outcomes in numerous situations. Whether it’s waived fees, higher credit limits, or a greater rate on a loan, it never hurts to get in contact and ask!

Steps to take in case you bounce a check

Discovering that a check you wrote has bounced is usually a stressful situation, but it surely’s essential to approach it with a proactive mindset.

On this section, we’ll outline practical steps to take in case you end up within the unlucky circumstance of getting a check bounce. 

1. Contact the person you wrote the check to (and the bank) 

It might feel like an uphill battle, but you might want to take fast motion. Contact your bank and the payee (the person you gave the check to) as soon as you realize the check will bounce or has already. Be certain that you’re all on the identical page—that you simply’re going to make things right as quickly as possible.

2. Deposit funds as soon as possible

Deposit funds into your account as soon as you’re able. Resolve in case you can pull from a distinct account and even borrow from a loved one. Speed is vital here. Should you’re lucky, you’ll have the option to deposit enough funds before the check officially bounces.

If you’ve multiple bank accounts at the identical financial institution, you may additionally have the option to rearrange on your bank to drag money out of your savings account within the case of insufficient funds in your checking account.

Note: An electronic transfer or check deposit is perhaps immediate, or it could take days to hit your account. To be extra protected, bring money to your bank branch in person.

3. Work out what you’ll owe in fees

Next, determine how much you’re going to owe in returned check fees. Work to bring your account current ASAP to avoid any additional fees.

When you’re at it, look into overdraft protection to avoid facing this case again. With this protection, your bank will cover the quantity of your bad check (as much as a certain quantity). Then, you’ll simply pay the overdraft fees to the bank, somewhat than suffering any additional processes or penalties.

The overdraft fees might even cost you lower than bounced-check fees without protection, which you’d possibly owe to retailers and your bank.

The best way to avoid having a bounced check

With technology speeding up the exchange of funds, you may now not write a check and cross your fingers that the recipient will wait a couple of days to get to the bank. In spite of everything, they may just snap an image from their phone to deposit it!

That said, in case you realize after writing the check that you simply’re not within the clear, consider reaching out to the person or business and asking for a little bit of a grace period. They could be willing to attend to process the check until you may refill your account with funds.

Nonetheless, the very best line of defense is sweet personal finance habits from the get-go. Listed here are a couple of suggestions that may show you how to avoid writing a bounced check in the primary place.

Create a budget

Plan, then plan some more. Map out recurring expenses and income. Leave a cushion for unexpected costs. (You may not know the amounts and causes, but you may bet on something unexpected popping up. Pencil that in.) Your budget is a useful framework to maintain you in keeping with your priorities and means.

Construct up your savings  

In your budget, consider how you may make room for savings. Every little bit helps and it adds up over time. Deal with build up your emergency fund and rainy day fund.

Your savings will show you how to avoid a crisis that sets you up for writing a nasty check. It’s so reassuring to have money to fall back on when things go awry.

Balance your checkbook 

Keep your checkbook in check by setting money dates with yourself, and potentially your partner in case you share bank accounts. Balancing your checkbook is particularly essential in case you use a debit card or share an account with someone because your account balance could also be different from if you last looked.

It is advisable have a handle on what’s going out and what’s coming in to see in case your budget and savings are on course.

What happens if I deposit a check that bounces?

If another person wrote you a check that bounces, it means the funds won’t ever settle, or “clear,” in your account. 

The cash might show up temporarily (depending in your bank’s procedures for pending deposits), but it would leave your account once the check officially bounces. Sometimes, the bank can even charge you a returned check fee or impose other penalties for depositing the bad check.

Your bank may notify you in regards to the bounced check, but they are usually not required to. It’s essential to observe your personal accounts to be certain the funds from a check clear in your account. This fashion, it’s also possible to protect yourself from spending money you don’t even have (hello, overdrafts!).

Do you continue to receives a commission if a check bounces?

No, you won’t receives a commission if a check bounces. Because the money from a bounced check won’t ever clear in your account, the one who wrote it would still owe you the cash. They’ll have to send one other payment—whether it is a latest check or a distinct form of cash transfer.

Should you deposited a check that bounced, get in contact with the one who was attempting to pay you. Hopefully, they’ll work with you to resolve it quickly. In a worst-case scenario where they refuse to reissue payment, you would possibly need to pursue legal motion.

Do bounced checks affect your credit?

What happens if a check bounces so far as your credit is anxious? Whether you were the payer or payee, can it ding your rating?

The excellent news is, bounced checks themselves don’t typically appear on credit reports. Credit bureaus primarily deal with credit-related activities akin to loans, bank card payments, and debt collections. 

Nonetheless, as we touched on earlier, the implications of bounced checks can not directly affect credit scores in the event that they result in a damaged banking relationship or other financial problems.

In extreme cases where a bounced check stays unresolved, the payee or the bank may take legal motion to get well the funds. If the matter escalates to collections or court, your credit rating can suffer significantly. 

To guard your credit, it’s crucial to deal with bounced checks as soon as you may.

Planning will show you how to avoid having a bounced check

Living inside your means is significant on your financial and mental health. So when times are tight, be extra sure you’ve the funds before writing a nasty check. When your check bounces, it costs you more time, money, and energy in the long term.

Even in case you work hard to avoid having non-sufficient funds in your account, accidents can occur. If a bounced check leaves your checkbook, don’t despair! Be proactive in handling the aftermath as quickly as possible, resolve the situation, and move forward with renewed confidence.