Old checking accounts can become troublesome if you’re not paying attention to them. Whether they’re overdrawn before you move on to another account or become overdrawn because you’re not monitoring them regularly, they can leave you on the hook for debt.
If you’re not careful, old bank accounts can even affect your credit and theamount your debt will cost you over a lifetime. Understanding how accounts become overdrawn can help prevent these actions from taking place. Find out more about the process and whether a bank can sue you for an overdrawn account below.
In this article:
- Do Overdrawn Bank Accounts Get Sent to Collections?
- How Checking Accounts Become Overdrawn
- Ways to Avoid an Overdrawn Checking AccountThe Collection Process and Consequences for Overdrawn Accounts
- What Is the Statute of Limitations on Collecting Overdrawn Bank Account Debt?
- Wrapping Up
Do Overdrawn Bank Accounts Get Sent to Collections?
Bank accounts can and often do get sent to collections. If you overdraw your checking, savings or money market account and don’t deposit the funds to repay the overage in a timely manner, the bank can send the account to its collection department or a debt collector.
How Checking Accounts Become Overdrawn
Overdraft Fees
You’re charged an overdraft fee when the value of the items presented for payment costs more than the available funds in your checking account. Overdraft fees typically range between $25 and $35. If your bank covers the overdraft item, you’ll have to pay back the total overdrawn plus the fee to bring your balance back in line.
For example, if you have $50 in your account and use your debit card for a $100 purchase, your bank might choose to honor the payment while also charging a $25 fee. That means you’re now $75 overdrawn and you owe that money back to your bank.
Non-Sufficient Funds (NSF)
Banks charge a non-sufficient funds fee if an item is presented for payment and funds are not available. Though this amount might be less than an overdraft fee, these “return fees” continue to add up. Each new item presented for payment while your checking account is negative incurs a non-sufficient funds fee.
Other Fees
If you’re not aware of the monthly or extra fees that your bank charges, you may not have enough in your account to pay them. The bank will still debit the fees, however, which can put your account balance in the red. Here are some common fees to be aware of:
Ways to Avoid an Overdrawn Checking Account
You can reduce the chances of overdrawing balances by checking your account regularly and keeping an eye on the transactions, deposits and fees that are coming through. Other tips to avoid overdrawing your checking account include:
The Collection Process and Consequences for Overdrawn Accounts
Understanding what happens when your bank account goes to collections can ensure you know what steps to take to fix it and how to keep it from happening again. It’s important not to assume that your bank will justcharge off the debt.
What Happens When Your Bank Account Goes to Collections?
Once an overdrawn checking account is closed, it’s usually sent to a bank’s collections department. Sometimes the bankhires a debt collection firmto help recover these funds.
Can You Get a New Checking Account If You Owe Your Current Bank?
Collections departments also will often put your checking account into ChexSystems, which maintains a record of delinquent bank accounts. Many banks check this service before allowing customers to open new accounts. If you have overdrawn accounts, unpaid balances or a history ofbounced checks, it can impair your ability to open new accounts.
Does an Overdrawn Bank Balance Hurt Your Credit?
Simply overdrawing your account won’t hurt your credit if you take care of the issue right away. However, overdrawn balances that are sent to collections can also show up on credit reports as negative items. This can reduce your credit score and make credit harder or more expensive to get.
Can a Bank Sue You for an Overdrawn Account?
If you don’t know about an overdrawn account or ignore it, the bank could eventually take legal action against you. The amount your account is overdrawn is a legal debt you owe, which means the bank can sue you and use legal remedies such as wage garnishment to get the money.
How Do You Get a Bank Account Out of Collections?
In general, you need to pay the balance of the debt to get any account out of collections. If the account is in the bank’s department of collections, you may be able to just deposit funds into the account to cover the amount you owe the bank. For example, if the account is overdrawn by $90, you might deposit $100.
An old account can present some challenges, though. If an old account has a negative balance you haven’t addressed, the bank may have closed the account and sent the debt to collections. The process is known as a charge-off, and your bank usually initiates this after your account has been past due for a period of around 60 to 90 days. You’ll have to pay the debt collection company to get the account to paid standing.
What Is the Statute of Limitations on Collecting Overdrawn Bank Account Debt?
Once your overdrawn bank account enters collections, there’s a specified amount of time during which a bank or debt collection agency can sue you. The window of time for legal action is referred to as thestatute of limitations.
Bank debts are considered unsecured debts, and the time frame in which you can be sued varies by state. After this period, your debt becomes time-barred, which means you still owe the amount but you can no longer be sued.
If a bank or collection agency tries to sue you after the statute of limitations is up, you should seek legal help. The statute of limitations is often between 3 and 10 years and starts from your last payment date. If you make a payment on a charged-off account, it resets your statute of limitations.
The statute of limitations is not the same as the amount of time your debt appears on your credit report. The reporting period is set by the federal government and determines how long the record of your bank charge-off will stay on your credit report. In most cases, debts are removed from your credit report after seven years.
Wrapping Up
Overdrawn checking accounts can cause long-term problems if not taken care of as soon as possible. These accounts are referred to credit reporting agencies, and they can affect your credit for years. Your debt can also be sold to third parties that might resort to extreme measures to receive payment. It’s usually best to resolve your balance before it goes to collections whenever possible.
Unsure whether you have an old bank account lurking? Sign up forExtraCreditto keep an eye on your reports and scores so you know when a collections account might be dragging things down. As an ExtraCredit member, you also get discounts on services, including credit repair from one of the leaders in credit repair service, to help you take control of your financial life now and in the future.
Sign up for ExtraCredit!
Get everything you need to master your credit today.
Get started for free 
As an expert with a deep understanding of financial matters, particularly in the realm of banking and credit, I can provide valuable insights into the complexities surrounding old checking accounts and the potential repercussions they may have on an individual's financial well-being.
Firstly, it's crucial to emphasize that neglecting old checking accounts can lead to various complications, including potential damage to your credit and legal consequences. The evidence supporting this claim lies in the intricate details of how checking accounts become overdrawn and the subsequent actions taken by banks.
How Checking Accounts Become Overdrawn:
-
Overdraft Fees: These fees are incurred when the value of transactions exceeds the available funds in your checking account. Overdraft fees typically range from $25 to $35, and if your bank covers the overdraft, you're obligated to repay the total overdrawn amount along with the fee.
-
Non-Sufficient Funds (NSF): If an item is presented for payment, and there are insufficient funds, banks charge NSF fees. While these fees might be lower than overdraft fees, they accumulate with each new item presented for payment, exacerbating the financial strain.
-
Other Fees: Monthly or extra fees imposed by banks can contribute to an overdrawn account, especially if the account holder is unaware of these charges. The bank may debit these fees even if the account balance is insufficient, pushing the account into negative territory.
The Collection Process and Consequences for Overdrawn Accounts: Understanding the collection process is crucial. Once an overdrawn checking account is closed, it's often sent to a bank's collections department. In some cases, the bank may enlist the services of a debt collection firm to recover the funds. Moreover, the account holder may find their information in ChexSystems, affecting their ability to open new accounts with other banks.
Credit Implications: While simply overdrawing your account may not harm your credit if promptly addressed, overdrawn balances sent to collections can negatively impact credit reports. This can result in a reduced credit score, making it harder to obtain credit on favorable terms.
Legal Consequences: If an overdrawn account is ignored, the bank may resort to legal action. The overdrawn amount constitutes a legal debt, and the bank can sue the account holder, employing measures like wage garnishment to recover the funds.
Statute of Limitations: Once an account enters collections, there's a specified time frame, known as the statute of limitations, during which a bank or debt collection agency can legally sue the individual. The duration varies by state (typically between 3 and 10 years) and starts from the last payment date. After this period, the debt becomes time-barred.
Credit Report and Debt Removal: It's essential to distinguish the statute of limitations from the time your debt appears on your credit report. The reporting period, set by the federal government, dictates how long the record of a bank charge-off remains on your credit report—usually seven years.
In conclusion, addressing overdrawn checking accounts promptly is crucial to avoid long-term financial problems. Monitoring accounts regularly, understanding fees, and being proactive can mitigate the risk of accounts going to collections, thereby safeguarding credit and financial stability.
