Can You Close a Bank Account With a Negative Balance?

Closing a bank account might seem straightforward, but a negative balance complicates the process. Banks typically do not allow customers to close accounts with outstanding debts, and ignoring the issue can lead to additional fees, collection efforts, and credit damage.

Bank Policies for Closure

Banks have strict policies regarding account closures, particularly when there is an outstanding balance. Most financial institutions will not process closure requests until all debts are settled to prevent losses and comply with regulations.

When an account is overdrawn, banks freeze closure requests and may place the account in a restricted status, preventing further transactions while keeping it active. If the negative balance remains for an extended period—typically 30 to 60 days—the bank may close the account involuntarily. However, this does not eliminate the debt, and collection efforts may continue.

Settling Unpaid Balances

To close an account with a negative balance, the debt must be repaid. The simplest way is by depositing enough funds to bring the balance to zero or positive. This can be done through cash deposits, electronic transfers, or mobile check deposits if transactions are still permitted.

If immediate repayment is not feasible, some banks offer installment plans. These require a formal agreement, and failure to meet the terms can lead to additional penalties or collections.

In some cases, banks may waive part of the negative balance, particularly if it consists mainly of overdraft fees. Customers can contact customer service or visit a branch to negotiate a reduction, with long-standing customers having a better chance of success.

Collection Actions

If the debt remains unpaid, the bank may transfer it to an internal collections department or sell it to a third-party debt collector. Once sold, all negotiations must be conducted with the collection agency.

Debt collectors may offer settlement options, such as accepting a lump-sum payment for less than the total amount owed. However, even if settled, the unpaid balance may still be recorded internally, potentially affecting future account applications.

Legal action is rare for small negative balances but possible for significant amounts. If a judgment is obtained, wage garnishment or bank levies could be used to recover funds. The likelihood of legal action depends on state laws, the amount owed, and the policies of the bank or collection agency.

Credit Consequences

A negative balance can affect creditworthiness if the unpaid debt is reported to ChexSystems or major credit bureaus. While checking and savings accounts do not usually impact credit scores, an account closed with an outstanding balance may be classified as “in default.”

ChexSystems tracks negative banking activity, including unpaid balances and excessive overdrafts. A negative entry can make it difficult to open new accounts for up to five years. Some banks offer second-chance accounts, but these often come with higher fees or restrictions.

If the debt is sent to a collection agency, it may appear on credit reports from Equifax, Experian, and TransUnion, leading to a drop in credit scores. A collection entry remains on a credit report for up to seven years, potentially affecting loan approvals, interest rates, and even job applications in industries that review credit histories.

Steps to Finalize Closure

Once the negative balance is resolved, the account must be formally closed. Simply bringing the balance to zero does not automatically close it, and failing to complete the process could result in inactivity fees or unauthorized charges.

Banks typically require customers to request closure through an in-person visit, phone call, or secure online message. Written confirmation is recommended to ensure a record of the request. Some banks issue a final statement or closure letter as proof of termination.

Customers should also update or cancel automatic payments, direct deposits, and linked services to prevent accidental overdrafts. If a recurring transaction attempts to withdraw funds from a closed account, the bank may reopen it, leading to new fees or complications.