What Should You Do if a Check Bounces?

In spite of the rise of the digital era, the use of checks remain a very popular form of payment. From paying taxes, rent, utilities, tuition and fees for higher education, medical bills, church offerings, and donations, checks are used by millions of people every day. Local merchants or older business owners may be more inclined to use checks, avoiding technical difficulties with technology.

Checks that bounce can cause significant problems - and many people are unsure what to do when it happens to them. The overall price tag to banks, credit unions, and other financial institutions from bounced checks stood at $1.3 billion in 2023. Individuals or businesses who write these checks face potential civil and criminal consequences and harm to credit if action isn’t taken.

Below, we guide you through the nature, causes, and costs of checks that bounce. You will also find tips on how to address a bad check attributed to you and how to avoid writing them.

What is a Bounced Check?

A bounced, “bad,” “rejected,” or “dishonored” check refers to one that a bank refuses to deposit or cash.

Insufficient Funds

Banks dishonor checks most commonly for insufficient funds. This means that the account from which the check is written does not have enough money to cover the check's amount. In fact, nonsufficient funds (NSF) accounted for 27 percent of rejected or failed consumer payments in April 2022.

Your account may lack sufficient funds to complete payment for numerous reasons.

Math errors. Even simple addition or subtraction errors can cause you to believe that your account has more money than it actually does. Miscalculations generally occur with the use of check registers. Consider the risk of misaligning places -- hundreds, tens, ones -- and thus adding or subtracting the wrong numbers.

Failing to Write Transactions. Inaccurate check register balances also result when you fail to write down purchases and withdrawals. With non-paper payments comes the prospect that you will forget to record the transaction in your register.

Automatic Payments. On average, customers tally 39 payments each month, and they increasingly turn to automatic payments. Nearly two out of every five consumers use automatic payment for bills. With automatic payments, the biller deducts from your bank account on a set day each month. This reduces the prospects that you will miss or have delinquent payments.

However, automatic payments can cause your account to have insufficient funds if deposits from wages, salaries, sales of goods or services, or other sources do not arrive when expected. Also, you might forget to record automatic payments, especially for utility, phone or other bills which are calculated by usage of services.

Identity Theft and Check Fraud. Consumers may unwittingly pass bad checks due to fraud artists. This may involve stolen debit cards and identity and altered checks. In one such practice, a fraud artist may use chemicals to erase or “wash” the payee and amount originally on a check and place another amount and payee on it. Identity thieves drain your accounts by making online or anonymous purchases in your name.

Closed or Non-Existent Accounts

Checks may bounce for reasons other than insufficient funds. An account that no longer exists constitutes one such other reason. Account holders may close a bank account while checks have yet to be presented or cleared.

In many cases, fraud artists may write checks on non-existent accounts. Here, the recipients of these checks become victims and unwitting accomplices in financial fraud. Specifically, the depositor will have sold a good or service in exchange for payment, only to learn that the account does not exist. The seller having initially deposited the check loses the funds or must repay cash due to the dishonored check. Often, the purported entity writing the check is fictitious and cannot be located.

What Happens When a Check Bounces?

A dishonored check can land you in legal and financial jeopardy.

Legal Ramifications

It is a crime for you to present a check knowing that you lack sufficient funds to cover it or that the account does not exist. Depending on the jurisdiction, writing a bad check over a certain amount is a felony.

Those who write bad checks face civil actions and penalties. State laws on dishonored checks commonly hold the check writer liable for amounts over and above the check amount. For instance, Virginia law imposes a civil penalty of three times the check or $250, whichever is less. Many states allow treble damages to victims of dishonored checks.

If your check bounces, the law treats you as having not paid. That means you still owe the invoice or other bill for which you tendered the check. Missed payments can lead to:

Cancellation of insurance for nonpayment of premiums
Foreclosures for missed mortgage payments
Automobile repossessions for missed payments
Lawsuits
Loss of privileges to use credit cards

Note that you cannot eliminate in bankruptcy a claim based upon an intentional bad check. Bankruptcy does not discharge you from debts that arise due to fraud or fraudulent activities to obtain goods, services, loans, or credit.

Effects on Your Credit

The major credit bureaus -- Experian, Equifax, and TransUnion -- do not report bad checks. However, writing such a check could indirectly affect your credit score because the merchant or creditor can report your account as being delinquent. The Fair Issac Corporation bases 35 percent of your FICO credit score upon payment history.

Low credit scores or poor credit history can prevent you from qualifying for a mortgage or automobile loan. Generally, a credit score of 620 is considered the minimum for a borrower to obtain a home mortgage. Some lenders may require as much as a 700 credit score.

Aside from your credit score, a history of rejected checks may prevent you from being able to write checks in the future. Businesses use ChexSystems to make decisions about accepting regular checks or extending loans or credit to consumers. With ChexSystems, banks determine whether to open accounts for customers. The reporting agency collects information on consumers’ check writing history, including dishonored checks.

What to Do When a Check Gets Dishonored

A notification that your check has been dishonored may alert you to overspending, math errors, or fraud such as identity theft.

To find the culprit, start by examining your register alongside the bank statement. We discuss more below how to examine your bank statements and register entries. Highlight and investigate unfamiliar or potentially unauthorized transactions. Promptly report to the bank any transaction you dispute. Federal law gives you up to 60 days after the financial institution sends the statement in question to dispute it. Normally, the bank or credit union must investigate and render its decision within ten business days after you lodge the dispute.

Assuming that the transaction is legitimate, check your math. Use a spreadsheet or calculator. Add or subtract after each transaction to see if the balance on your review matches what you had recorded in your register. Keep a list of errors. With a separate sheet, note the amount of the error until you finish and get a net total of the discrepancies.

Contact the vendor or other company that received the dishonored check and discuss arrangements to satisfy the check or the debt. This may involve transferring money from a savings or other account to cover the amount of the check and any bank-imposed or other fees.

How to Avoid Writing Bounced Checks

Overdraft Protection

Overdraft protection plans cover bad checks or other withdrawal transactions that exceed the available balance in checking accounts. Depending on your bank, overdraft protection may come from savings accounts or lines of credit. Subsequent deposits into your checking account repay the savings account or replenish the line of credit used for overdraft protection. Banks generally charge fees for the use of overdraft protection.

Low Balance Alerts

Your bank likely allows you to enroll for notifications that your available balance has fallen below a specific amount. These texts or emails may cause you to examine your spending and your bank statement for potentially missed or fraudulent transactions.

Computer-Based Math

Consider accounting software or spreadsheets that perform the additions and subtractions for you. If you use this, be sure each day to write all of your transactions. If you rely on registers to track your account, have a calculator handy.

Recording Transactions

As soon as you spend or deposit, record the transaction on your register. Have it with you for mobile or online purchases and deposits, especially if you do not print a receipt. For checks that you will mail or deliver later, write the date and amount in the register when you write the check. Include the check number.

The practice of writing checks you will later send helps condition you to treat funds as unavailable and not overspend. Another approach involves paying, scheduling, and noting automatic payments of bills on the same day as you get your paycheck. To do so:

List your monthly bills by due dates
Group them based upon your regular pay date, such as the beginning and middle of the month
For recurring automatic payments, list the date for which the payment is to be made and the amount
Avoid waiting until the due date to send and write down payments

Budgeting

A sound budget can curb the overspending that leads to bad checks and overdrafts.

As a starting point, categorize your expenses as mandatory or discretionary. Payments that you must make to maintain yourself and household include:

Loan payments (Mortgage, automobile loans, student loans)
Rent
Taxes owed and paid through a payment plan
Insurance premiums
Necessary living expenses, including food and utilities
Food
Gas
Childcare

Even with mandatory spending, you have some choices to reduce expenses. For instance, store brand groceries generally cost less than national brands.

In the category of discretionary spending lie expenses such as movies, streaming, newspaper subscriptions, dining, and memberships in buying clubs or fitness establishments.

Regularly Review Bank Statements

Online banking makes it possible for you to review transactions daily and otherwise more frequently than monthly. Compare your register with what the bank shows as the transactions.

When you review online, you will likely see transactions categorized as “pending” and “posted.” Those in the latter category have cleared the bank and are completed. Pending transactions await being cleared, but they nevertheless factor into your “available balance” reported by the bank. For posted card, mobile, or online transactions, the statements will show the date the transaction was posted to your account and when it was made. You normally enter the date of the transaction in the register.

Bank statements may include unfamiliar names as payee even as the date and amounts appear to match your register or records. The payee may identify itself to financial institutions with a company or legal entity name rather than the trade name that appears on the front or a store or online site. Should you have concerns, contact the store or site to verify the payee’s name that appears on the statement.