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Two weeks ago you wrote a check for your rent. Yesterday you wrote one for your car payment. Today, both were cashed and there wasn't enough money in your checking account to cover payment. When a check bounces—or you're on the receiving end of one that does—there are a few steps you can take to minimize problems.
What Happens When a Check Bounces?
A bounced check is one that gets rejected because it can't be processed, either because the account associated with it did not have sufficient funds or due to an error with how the check was written. Dealing with a bounced check can be a frustrating experience whether you're on the issuing or receiving end.
When a Check You've Written Bounces
If you wrote a check that bounced, your bank may charge you a nonsufficient funds fee or overdraft fee. In addition, the company you were trying to pay may charge you a late fee if the bounced check means your payment is now overdue. Failure to pay outstanding fees can result in your account being sent to collections.
When You Receive a Check That Bounces
If you've received a check that bounced, you'll have to wait on the money you're owed. You may feel skeptical about the payee's ability to pay you at all now that they've provided a check that bounced. Lack of payment could make it harder for you to cover your other financial obligations. On top of that, your bank may have charged you a returned check fee.
Why a Check May Be Rejected
There are a variety of reasons a check might bounce, including:
- The account lacks funds. An account with a balance lower than the amount of the check will cause the check to be rejected due to nonsufficient funds.
- The account has been closed. If you've held on to a check for a while, the issuer may have closed or moved their account in the time since the check was written.
- A stop payment order was issued. A stop payment order can be requested by the person who wrote the check when they wish to prevent it from being deposited, perhaps because they believe it to be lost or they no longer wish to pay for a service.
- The check was not written properly. There are many ways a check can be written improperly, such as a mismatched amount box and amount line or a misspelling in the recipient's name.
- The check is too old. Generally, you have up to six months to cash a check. After that, a bank may no longer honor it.
- The check is fraudulent. A fraudulent check may be one stolen from the account owner or one issued knowingly from an account in poor standing.
The Time Frame of a Bad Check
It takes some time for a check to clear. That's because many banks use the Federal Reserve as an intermediary when verifying funds from the issuer's bank over several days. However, banks are required to allow you to access up to $225 of the funds from the check you deposited the next day, even if the bank has not cleared the check through the Fed and issuing bank yet.
This processing time is why it's wise to wait up to five days to use the money from a check you're uncertain about. If you cash a check or spend a deposited check too soon only to find out it has bounced, you'll be on the hook for returned check fees as well as the total amount of the check you took out.
Financial Consequences of a Bounced Check
You don't need to worry about your bounced check showing up directly on your credit score—bounced checks are not reported to the three major consumer credit bureaus (Experian, TransUnion and Equifax). If you miss a payment because your check did not go through and you never bring the account current, however, it may be reported as a collection account. Debt accounts such as loans and credit cards may be reported as delinquent once the payment is 30 days late or more.
Bounced checks may show up on your ChexSystems report that's used by banks to assess customers. If your bounced check is reported here, it may affect your banking access in the future.
How Do You Recover Money From a Bounced Check?
As the recipient of a bounced check, you will need to get in touch with the check issuer and request payment. If you're unable to resolve it with a conversation, you could take further action by sending a demand letter via certified mail. This letter should include the check amount, the date it was written as well as any fees you incurred when trying to cash the bad check. Sample "bad check" forms are available for reference online.
Documenting these details and sending a letter requesting payment may be helpful for your case if you end up taking the issuer to court.
How to Avoid a Bounced Check
- Balance your checking account. You can use your bank's app or a budgeting app to keep track of exactly what's going in and out of your account.
- Use a peer-to-peer payment app, such as Cash App or Zelle, that shows a live balance at the time funds are sent.
- Request payment by a cashier's check, certified check or money order which will come with more guarantees than a personal check.
- Stop taking checks as payment.
The Bottom Line
The best way to deal with bounced checks is to avoid writing or accepting them in the first place. Budgeting tools can help you keep tabs on your checking account to make sure you avoid overdraft fees. If a bounced check has caused you to be late making payments, keep an eye on your credit score to make sure none of your bounced checks resulted in credit score harm. If you are on the receiving end of a bad check, you can pursue payment from the issuer but you can also make a plan to avoid accepting bad checks in the future.
Bounced checks happen—but using the right financial tools to prevent them can help you recover from any damages quickly.