If a Check Bounces, This Is What Happens

A bounced check, also known as a dishonored check, occurs when a financial institution cannot process a payment due to various reasons, returning it to the recipient. Understanding the implications of a bounced check is important for anyone involved in financial transactions.

Why a Check Bounces

A check can be returned unpaid for several reasons, with insufficient funds being the most common. This happens when the account lacks enough money to cover the check amount. Another reason a check might bounce is if the account it was drawn on has been closed. A check writer may also issue a stop payment order, instructing their bank not to honor the check. Less frequently, issues like an incorrect date, missing signature, or other errors in how the check was filled out can lead to it being rejected.

Impact on the Check Writer

When a check bounces, the writer typically faces several financial penalties. Their own bank will likely charge a Non-Sufficient Funds (NSF) fee, typically $20 to $35 per item. If the check is presented multiple times, a fee may be incurred each time it is returned unpaid. The recipient of the check may also impose a returned check fee, often ranging from $20 to $40, as permitted by state law.

Repeated instances of bounced checks can negatively affect the check writer’s banking record. Financial institutions often report such activity to consumer reporting agencies like ChexSystems. A negative ChexSystems report can make it difficult to open new checking or savings accounts in the future. While bounced checks do not directly impact credit scores, unpaid debts that are sent to collections can appear on credit reports, potentially lowering a score. Furthermore, a bank may decide to close the account of a customer who habitually writes bad checks.

Impact on the Check Recipient

Receiving a bounced check means the intended payment was not received, which can lead to cash flow disruptions or delays. The recipient’s bank may also charge a returned deposit item fee for processing the bounced check, typically $10 to $19. This fee is incurred even though the recipient had no control over the check writer’s account balance.

Beyond direct fees, the recipient incurs time and effort to follow up on the unpaid amount. Businesses may face administrative burdens in reconciling their accounts. The recipient is generally entitled to seek reimbursement from the check writer for the original amount of the check and any fees incurred. Many states permit the recipient to charge the check writer an additional fee for the returned check, typically between $25 and $40.

Steps for the Check Writer

If you have written a check that bounced, contacting your bank immediately is important to understand the specific reason for the return and any associated fees. Review your bank statements to assess your current balance and identify all debits and credits. Reach out to the person or business you paid to inform them of the situation and arrange an alternative payment method. Offer to cover any returned check fees they may have incurred.

Deposit sufficient funds into your account promptly if the bounce was due to insufficient funds, especially if the check might be re-presented. Implement better record-keeping practices for your spending and account balance to prevent future occurrences. Consider setting up bank alerts for low balances or exploring overdraft protection services offered by your bank, which can sometimes cover a shortfall for a fee. Regularly reviewing your personal budget can help maintain adequate funds and avoid future bounced checks.

Steps for the Check Recipient

Upon discovering a deposited check has bounced, contact your bank to understand any returned deposit item fees you may have been charged. Promptly notify the check writer about the bounced check and request immediate alternative payment. Clearly state the original amount owed, plus any fees you incurred from your bank, and the returned check fee you are charging them.

It is generally not advisable to re-deposit the bounced check without confirming with the writer that funds are now available, as this could lead to additional fees for both parties. Request payment through more secure methods like a cashier’s check, money order, or direct bank transfer. If the check writer is unresponsive or refuses to pay, sending a formal demand letter by certified mail can be an effective next step. In situations where informal resolution fails, pursuing legal options such as small claims court may be considered to recover the funds owed.