What Happens If I Deposit a Bad Check?

Depositing a check is usually a straightforward financial transaction, but sometimes funds do not become available as expected. When a check you deposit is returned unpaid, it is commonly referred to as a “bad check.” This article will explain what constitutes a bad check, how banks process these items, the steps a depositor should take, and the broader financial and legal implications that may arise.

Understanding a Bad Check

A “bad check” is a check that a bank cannot process for payment, leading to its return. Several reasons can cause a check to be returned unpaid. One common reason is Non-Sufficient Funds (NSF), meaning the check writer’s account does not hold enough money to cover the check’s amount. An account might also be closed.

Another scenario involves a “stop payment” order, where the check writer instructs their bank not to honor the check after it has been issued. Checks can also be returned due to fraud, such as a forged signature, where the signature on the check is not that of the account holder. An “altered check” involves unauthorized changes to key details like the payee’s name or the amount. Incorrect account details or missing information, such as a signature, can also cause a check to be returned.

Bank Processing and Account Impact

When a bad check is deposited, banks typically provide provisional credit to the depositor’s account, meaning the funds appear available but are not yet permanently settled. If the check is later determined to be “bad,” the bank will reverse this provisional credit. The funds will then be withdrawn from the depositor’s account. This reversal can lead to a negative balance if the account lacks sufficient funds to cover the withdrawal.

Banks frequently charge fees when a deposited check is returned unpaid. These can include a “returned item fee” or “returned deposit fee.” If the reversal of the provisional credit causes the depositor’s account to become overdrawn, additional overdraft fees may be assessed. Returned check fees typically range from $20 to $50, and in some cases, can be as high as $70, depending on the financial institution.

Steps for the Depositor

Upon notification of a returned check, the depositor should promptly take action. The bank will typically inform the depositor that the check has been returned, often indicating the reason for the return. Depositors should review this notification to understand why the payment failed.

The next step involves contacting the individual or entity who wrote the check to inquire about the issue and arrange for an alternative payment method. It is advisable to document all communications, including dates, times, and details of conversations. If the check writer is unresponsive or unwilling to resolve the issue, the depositor may need to consider further actions. Understanding the bank’s specific return process and any associated timelines is also important.

Financial and Legal Consequences

Dealing with a bad check extends beyond immediate bank fees and can have broader financial and legal implications. For the check writer, issuing repeated bad checks can damage their banking relationship and lead to their information being reported to consumer reporting agencies like ChexSystems. This can make it difficult for the individual to open new bank accounts in the future.

For the depositor, if the check writer refuses to make good on the payment, civil remedies may be pursued. This could involve sending a formal demand letter for payment, and if that fails, filing a lawsuit in small claims court to recover the funds. In cases where a check was knowingly written without sufficient funds and with an intent to defraud, criminal charges may be filed against the check writer. The severity of these charges, ranging from a misdemeanor to a felony, often depends on the check amount and specific state laws.