What Happens if You Overdraft Your Bank Account and Don’t Pay It Back?

By Sarah Li Cain · May 20, 2024 · 7 minute read

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What Happens if You Overdraft Your Bank Account and Don’t Pay It Back?

An overdraft is a negative balance in your bank account and can occur for any number of reasons. You might accidentally spend more than you have available in your checking account, for example, or forget to transfer funds before an automated payment gets debited from your checking account. Whatever the cause, an overdraft comes with a number of negative consequences, especially if you don’t pay what you owe right away.

Read on to learn exactly what happens when you overdraft a bank account, plus tips on how to repair the damage and avoid overdrafts in the future.

Key Points

•   Overdrafting occurs when spending exceeds the account balance, and the bank covers the shortfall.

•   Banks charge hefty fees for overdrafts, which must be repaid along with the overdrawn amount.

•   Unresolved overdrafts can lead to account closure and debt collection efforts.

•   Negative banking records from unresolved overdrafts may hinder the ability to open new accounts.

•   Setting up alerts and linking accounts for overdraft protection can prevent future overdrafts.

What Is an Overdraft?

An overdraft happens when you spend more than you have available in your bank account and the bank pays for the transaction anyway. Think of it as a form of credit, where the bank is lending you money to cover the transaction and you’ll need to pay them back. Having this feature can be convenient, since it allows you to cover payments or withdrawals, like subscription services or a utility bill, even if you don’t have enough funds in your account to cover them.

However, many financial institutions charge their customers hefty fees for this convenience. Depending on the bank, overdraft fees can run upwards of $35. You are expected to pay the fee, plus the amount that was overdrawn.

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What Happens if You Overdraft Your Bank Account and Don’t Pay It Back?

If you overdraft your bank account and don’t pay what you owe plus the overdraft fee, you could face several unpleasant consequences, such as owing additional fees, your account being closed, and having the debt go to collections. Here’s a closer look at the potential fallout.

You Owe the Bank

The amount that was overdrawn, plus any fees, is what you owe the bank. You can repay your debt by transferring or depositing the owed amount into your account. Depending on the financial institution, you may have a certain amount of time to pay the bank back, such as within 30 days of the overdraft.

Pay the Overdraft Fee

Some banks charge a fee each time you overdraft, while others charge a fee for each day you overdraft. This is an important distinction: If your bank charges a fee for each overdraft and you inadvertently overdraft your account multiple times on the same day (which can happen if you have a low balance to start with), you’ll face multiple overdraft fees. For example, if your bank charges $35 per overdraft and you have three transactions in one day, you’ll owe the bank $105 in fees.

Your Account Could Be Closed

If you continue to overdraft your bank account and don’t pay it back, the bank may close your bank account to prevent any more withdrawals. You will still owe the amount you’ve overdrawn, plus any fees you’ve incurred. In some cases, the bank will send your debt to a collection agency.

The Bank Can Sue You

Anyone you owe a debt to can take you to court to try to collect it. The bank can sue you or, if it turns the matter over to a collection agency, the agency can sue. If the court grants a judgment against you, the bank or collection agency can garnish your wages or to place liens against your property in an effort to collect the debt.

Difficulty Opening Another Account

Some financial institutions will report closing your bank account and your unpaid overdraft debt to ChexSystems, the reporting agency for banking. ChexSystems maintains a report of your banking activity, which banks and credit unions can use to determine whether to approve your application for a new checking or savings account. Having an overdrawn and closed account could impact your ability to open a new account, even if it’s at a different bank or credit union.

How to Avoid Overdrafts

Overdrafts are an expensive nuisance. Here are some strategies that can help you avoid overdrawing your account in the first place.

Monitor Your Spending

Keeping an eye on how much you have in your checking account each day and knowing when bills are due can help you avoid spending more than you have available.

Set Up Low Balance Alerts

Many financial institutions allow you to sign up for customized banking alerts, either online or via your banking app. It’s a good idea to set up an alert for whenever your balance dips below a certain threshold. That way, you can top up your account to prevent the account from being overdrawn.

Check Your Account Statement Regularly

Looking at your account statement each month can help you spot patterns, like when your account balance tends to dip and, if you have an overdraft, when and why it happened. This can help you better monitor your account and adjust your spending.

Link Your Checking Account to Another Account or Credit Line

Many banks offer overdraft protection, which allows you to link your checking account to a savings account within the same financial institution or, if you qualify, a credit line. That way, if you don’t have enough funds in your checking account to cover a transaction, the bank will automatically transfer money from your savings to cover the transaction. In the case of a credit line, the bank will borrow what it needs from your credit line.

Overdraft protection avoids overdraft fees, but may come with interest and other fees.

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The Takeaway

Overdrafting your bank account and not paying what you owe could result in some negative consequences, like racking up even more fees, having your account closed, the debt going to collections, and difficulty opening a new bank account.

Even if you do all you can to prevent an overdraft, the reality is that it can happen on occasion. If you’re worried about the occasional overdraft, it may be worth looking for a bank that doesn’t charge overdraft fees.

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Can you go to jail for an overdrawn bank account?

Having an overdrawn bank isn’t considered a criminal offense, so you won’t go to jail. You could face other consequences, though, such as overdraft fees, the bank closing your account, and the balance you owe going to collections.

How long can your bank account be overdrawn?

The time period will depend on your bank. Some may require you bring the negative balance to zero (basically, deposit the amount you’ve withdrawn plus any fees) by the next business day, while others will give you a 30-day grace period.

Can I close my account with a negative balance?

In most cases, banks won’t let you close a checking account that has a negative balance. You will need to ensure your account is current — getting the overdraft amount back to zero and paying any fees you owe.

What happens if your bank account goes negative and you never pay it?

Your bank may close your account and send the amount you owe to collections. The account closure and overdraft debt will also be reported to ChexSystems (an agency that tracks consumer banking history). This could mean you’ll have a hard time opening another bank account.

Can your bank sue you for the overdraft?

Yes. If you’re not aware of an overdrawn account or simply choose to 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 tactics such as wage garnishment to recoup their losses.

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