Can You Close an Overdrawn Bank Account?
Understand how to close an overdrawn bank account, the implications for your negative balance, and the steps to resolve your financial obligation.
An overdrawn bank account occurs when the balance in a checking or savings account drops below zero. This occurs when transactions exceed available funds. The bank may choose to cover the shortfall. It typically incurs overdraft fees, which can vary but often range from approximately $25 to $35 per transaction.
Closing an Overdrawn Account
It is generally possible to close a bank account with a negative balance, though the process differs depending on who initiates the closure. Most banks will not allow an account holder to voluntarily close an account that has an outstanding negative balance. The institution views the overdrawn amount, plus any associated fees, as a debt owed by the account holder, a legal obligation that persists regardless of the account’s open or closed status.
If the negative balance remains unresolved for an extended period, the bank may take the initiative to close the account itself. Banks typically have policies outlining how long they will maintain an overdrawn account before taking such action, which can vary from weeks to a few months. Even if the bank closes the account, the debt does not disappear; the account holder remains responsible for repaying the full amount owed, including all accumulated fees.
Addressing the Negative Balance
When a bank account carries a negative balance, the debt owed to the financial institution must be addressed. Banks often begin with internal collection efforts, which include contacting the account holder through various channels to request repayment. If these initial attempts are unsuccessful, the bank may escalate the matter by engaging a third-party debt collection agency. This action can result in the debt being reported to credit bureaus, potentially affecting the account holder’s credit score.
An unresolved negative balance can also have significant consequences for future banking relationships. Banks frequently report delinquent accounts and unpaid overdrafts to specialized consumer reporting agencies, such as ChexSystems. ChexSystems collects information on consumers’ deposit and debit history, including details like unpaid negative balances, involuntary account closures, and habitual overdrafts. A negative report in ChexSystems can make it challenging to open new checking or savings accounts at other financial institutions for several years.
Steps for Account Closure
Initiating the closure of an overdrawn bank account, once the outstanding balance is resolved, typically involves direct communication with the bank. Account holders can usually contact their bank by phone, visit a local branch in person, or use online banking platforms or secure messaging features. Regardless of the chosen method, it is important to have specific information readily available, such as the account number and valid identification, to verify identity.
Before proceeding with closure, it is advisable to confirm with the bank any specific policies or requirements related to closing an account that was previously overdrawn. It is important to manage any pending transactions, direct deposits, or automatic withdrawals associated with the account to prevent further complications or fees. Once the closure process is complete, obtain written confirmation from the bank. This documentation serves as proof that the account has been officially closed and that no further obligations remain with that particular account.