Your bank may charge fees, freeze the balance, and eventually close it if you leave your deposit account negative. Closed bank accounts with negative balances are frequently reported to credit bureaus and appear on your credit file as unpaid obligations. These accounts hurt your credit score and can last up to seven years on your credit report. A negative account balance can result in fines as well as account cancellation. The account could also be reported to several credit bureaus, making it more challenging to acquire a bank account.
Can You Go to Jail for Overdrafting Your Bank Account?
No, you can not go to jail for over-drafting your bank account. However, if you overdraft your bank account too much and avoid paying debts, the bank, as your creditor, can report you to the credit bureaus, close your bank account, and damage your credit score.
However, by law, states can determine jail punishment for overdrawing your account, but the “reasons for overdrawing an account must support a criminal prosecution.”
Banks are provided checks and balances to provide a space between the receipt and the need for your money. You can pay bills, go to movies and even give a buddy money without always having to carry and keep the cash in your checking account. On the other hand, checking your accounts will not allow you to spend more cash than you do. Your bank will have the authority to levy fines, demand reimbursement, and even shut down the account if this occurs.
If your account has a negative return, your bank will probably charge you an overdraft fee, which will exhaust your money further. In addition, if you were negative for an extended period or had gone negatively frequently, your bank may discontinue your account. Therefore, please ensure that your balance is checked often.
The Consequences of Overdrawing a Bank Account are:
- The bank may charge you hefty overdraft fees: Most banks will charge an additional fee for each transaction that puts your account into overdraft, which can add up quickly and be quite expensive.
- You could damage your credit score: If the unpaid overdrafts remain on your account for too long or continue to overdraw frequently, they could be reported to the credit bureaus and negatively impact your credit score.
- Your bank may close your account or send you to collections: If you are consistently in an overdraft situation or don’t bring the account up to date, the bank may decide to close the account and send it to collections, which can further damage your credit score.
- Unable to make online payments from this account: As soon as your balance reaches $0 or below, any online payments due from this account will be declined until the balance is returned above zero.
- Possible Denial of Other Bank Services: Overdrafts can also lead to denial of other services like opening a new savings account or taking out a loan with this bank since you have proven that you are not responsible enough with finances.
- High-interest rates on future loans: Banks may also impose higher interest rates on future loans if they feel a higher risk of default due to past overdrafts on this account.
- Your spending habits can become harder to manage: When you continually use overdraft protection, it can be challenging to track where all your money is going and how much has been spent – leading to more frequent overspending scenarios in the future.
- You may incur penalties from lenders/merchants: If an item purchased with an overdraft card is returned, or if any checks written against the over-drafted funds bounce, both lenders and merchants may charge additional fees or penalties for these incidents as well as report them negatively on your credit report if not rectified in time (or within their acceptable time frame).
- Embarrassment when making purchases at stores/restaurants: Due to potential declines from online purchases when an account has gone negative, shame follows when trying to make purchases at stores/restaurants using debit cards only to find out they’re declined due to lack of available funds in one’s accounts
Paying Assessed Fees
Whenever your bank account falls below zero, your bank will charge you a non-sufficient funds fee on the item that caused the balance to drop below zero. If any other transactions post to your account after it goes into the negative, your bank may impose an NSF fee for the presentment of those transactions, even if the bank chooses not to pay the transactions. If you make multiple withdrawals on the same day, your bank will usually pay the bigger ones first, followed by the smaller ones. As a result, if you had one extensive check cleared your account on the day it went into the negative, you could get many NSF fines for tiny goods.
Paying Extended Overdraft Fees
If your account balance remains negative for over a week, many banks incur “extended overdraft fees.” As a result, even if no new items are offered for payment against your account, the negative balance on your account can continue to grow. When accounts go into the negative, banks try to contact account holders by phone, e-mail, or even text messaging, and they keep trying as long as the account balance is below zero.
Your other accounts may be reviewed if you don’t approach your bank to make plans to pay down your overdraft. Your bank can remove cash from any other deposit accounts with a positive balance and use them to offset your negative balance if you have any other deposits with a credit vibe. In addition, banks can utilize the right of offset to take money from any account you are identified as an owner; thus, if you are a signer on a friend’s or relative’s bank, the bank can take money to pay your obligation. State rules on the right of offset differ, but banks are not required to warn you before utilizing the right of offset in many instances.
Closing the Account
Banks often close overspent accounts after 60 days, whereas credit unions close them after only 45 days. After that, the bank closes your account and sends your account details to the collection company after charging it off. After that, credit bureaus and a business called ChexSystems, which supplies consumer information to banks, might notify the loan originator of the debt. After that, the debt collection department will try to recover the money on its own or with the help of a professional collection agency.
You are entitled to close your bank if your balance is zero over an extended length of time. However, your account may be shut off if you are regularly negative. Asking someone at the bank or reading your account disclosure is the only way to determine what will happen to your bank and when.
You will still owe money to your bank when your account is finished. However, the lowest priority may be to have your bank remove your cash. Banks have their own set of reporting offices, like credit offices. It will be hard for you to open somewhere else a bank account for you.
When your account is canceled, you will still owe your bank money. However, removing your funds might be your bank’s lowest priority. This is because banks have their own monitoring offices, like credit offices. As a result, you will find it challenging to create a bank account elsewhere for years, particularly if you have not paid your bill after reporting your bank to their office.
Accounts checking can make protecting, controlling, and managing your funds easier. You also have a positive and up-to-date account if you have a bank account. However, a deficit in the checking account might be pretty harmful. You can take numerous actions to rectify the situation when you cannot pay the negative amount in your account.
You’ll want to quit using the account and maybe even close it if you cannot settle your negative checking account balance. You may also use a savings account advanced service and request forgiveness of fees.
Request for forgiveness for fees
Your bank may often desire your overwritten account to assist you in settling and maintaining your client. Go to your local branch to ask a bank customer care representative to talk. Explain your status to the agent and tell him that you want to keep your account up-to-date but cannot pay your opposing account fees. If you have no history of overdraft charges, you can eliminate part or all of the costs on your account for overdrafts. It will reduce your debt and make it possible to repay it quickly.
How might overdrafts be avoided?
Placing additional money into a debit card savings account is one way of avoiding a bad situation. For example, your savings account will take the money to finance the transaction if you have an overdraft.