What Is a Bad Check?
A bad check is one that can't be negotiated because it's drawn on a nonexistent account or on an account that holds insufficient funds to cover its amount. A bad check is also known as a hot check and writing one is illegal.
Banks normally charge a fee to anyone who unintentionally writes a bad check. The punishment for trying to pass a bad check intentionally ranges from a misdemeanor to a felony. The exact penalty depends on the amount of the check and the state in which it's written. Cashiers checks and certified checks are less susceptible to this possibility.
Key Takeaways
- A bad check refers to a check that can't be negotiated or honored because it's drawn on a nonexistent account or one that hasinsufficient funds.
- A bad check is also known as a hot check.
- People who write bad checks are normally charged fees by their banks and they could be on the hook for any fees incurred by the payee as well.
- Knowingly writing a bad check may constitute a misdemeanor or a felony, depending on the amount of the check and the state in which it was written.
Understanding Bad Checks
Checks are essentially an IOU for money. When you write a check, you effectively promise the payee that you have enough money in your account to cover its amount. The bank will "bounce" the check if you write a bad one because there are insufficient funds in your account to cover it. It will decline to pay the amount.
Bad checks are sometimes written inadvertently by people who are unaware that their bank balances are too low to cover the amount. Banks and vendors frequently charge fees for bounced checks that can sometimes exceed the amount for which the check was written. The bank normally adds a nonsufficient funds (NSF) charge to your account as well that can be as high as $35 for each bad check written. You may also be on the hook for charges that the payee incurs as a result of your bad check.
But some individuals write and try to pass checks even though they know there's not enough money in their accounts to cover them. This constitutes fraud and it's a crime. People who commit these crimes are subject to penalties above and beyond NSF charges.
A crime is generally not committed if a post-dated check is presented because the check is a promise to pay at a future time. Whether there are insufficient funds in the account at the time the check is written is irrelevant.
Bad Checks and the Law
There can be times when you write a bad check without even realizing it. Maybe you thought you had enough money in your account or you thought that the check had already cleared so you spent the money in your account that would have covered it.
You probably won't be penalized too heavily in this case. You can expect to pay just a bank fee, but that might not be the case for people who knowingly write bad checks.
Knowingly writing a bad check is an act of fraud and it's punishable by law.
Criminal penalties for people who tender checks knowing that there are insufficient funds in their accounts can vary by state. Some states require an intent to commit fraud. The crime is considered a misdemeanor in the majority of states, but it can be treated as a felony if the check amount exceeds certain thresholds.
Civil penalties apply in all cases with a common penalty being an amount equal to the check's face value, a multiple of the check's amount with a cap, or the check amount plus court costs and attorney fees.
How to Avoid Writing a Bad Check
Keeping up to date with your finances is much easier than it used to be thanks to online banking. It can help you avoid writing bad checks because you can view your balance more frequently and you can verify if and when any checks you write have cleared your account.
Contact the payee and speak to them about possibly holding the check until a later date if you know that one you've written isn't going to clear. It may be embarrassing, but you'll be better off in the end. It's better to be proactive and delay the check's cashing rather than risk getting hit with charges from both your bank and the payee.
Another option is to add overdraft protection to your account. This protection acts as a cushion or insurance policy if you find that you have to cover expenses but don't have enough money in your account to do so. Your bank will cover any checks you write up to a certain limit when you go into overdraft status. allowing your account to dip below a $0 balance because this option is essentially a short-term loan.
The bank will charge you interest on the overdraft balance as well as a fee for having overdraft protection on the account.
If You Receive a Bad Check
You may not even know that you've received a bad check for several weeks until the bank notifies you or you check your account. The bank will reverse it from your account when a check written to you bounces so you'll see a debit for the same amount of the written check. You'll probably end up with an overdraft if you've already spent the money.
The first thing to do is contact the person who wrote the check and inform them that it bounced. Don't assume that the bad check was written on purpose because it may have been an innocent mistake. Then maybe you can try to deposit the check again. You may have legal recourse to recover the funds by taking the writer to court if the check bounces a second time.
Will My Bank Automatically Decline to Pay a Bad Check If I Don't Have Overdraft Protection?
Not necessarily. A bank's overdraft policy can be "automated" or "ad hoc" under FDIC guidelines. Automated decisions are made by a computer system based on certain criteria so your check may or may not be paid depending on where it falls within those criteria. Ad hoc decisions are made by staff so you may have more flexibility. The criteria may not be carved in stone. Contact your bank right away to determine its policy and your options if you think you're in danger of bouncing a check.
What Happens If a Debit Card Transaction Overdrafts My Account?
You often have the option of opting in for overdraft protection for transactions made on your debit card, either with a merchant or at an ATM. The bank will most likely approve your transaction if you've opted in for this protection, but you'll be charged a fee. Your bank will probably decline your transaction if you haven't opted in for protection, but you can't be charged a fee in this case.
What Are Common Criminal Penalties for Writing Bad Checks?
Penalties can vary by state and by circ*mstance. New York caps jail time at three months while California allows incarceration for up to a year. This increases to up to two years in Texas where writing a bad check is a felony. Some states impose fines as well, as high as three times the amount of the bad check.
The Bottom Line
Adding overdraft protection to your bank account will help to prevent accidental overspending and bounced checks and you can contact the person who wrote you a bad check if you receive one and want to try to determine why it was returned unpaid. Sometimes mistakes happen, but make sure either scenario isn't a common occurrence. Contact the recipient and your bank immediately to pay any fees caused by a bad check you've unintentionally written and to find out what you owe.
