What happens if you don't pay an overdrawn bank account?

For millions of Americans dealing with tight budgets in this high-cost environment, overdrafts have become an increasingly common source of financial stress. Banks collected billions in overdraft fees over the last year from accountholders, and with the average overdraft fee hovering at about $35, even a small misstep with your finances can quickly spiral into a serious financial burden. For example, what starts as a negative $50 checking account balance can balloon to hundreds of dollars once multiple fees stack up.

And, when you're already stretched thin trying to manage high-rate credit card payments, rising rent and everyday expenses, as many Americans are right now, finding the money to clear a negative bank balance can feel next to impossible. The temptation to simply ignore it, hoping it will somehow resolve itself or that the bank will forget about it, becomes stronger with each passing day. But like other types of debt, that negative balance doesn't sit quietly in the background.

In fact, the consequences can extend far beyond your relationship with that particular bank. So, what happens when you don't pay an overdrawn account, and what are your options for addressing that debt? Knowing this information can help you handle the situation before it causes lasting damage.

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What happens if you don't pay an overdrawn bank account?

When you leave an overdrawn account unpaid, banks typically follow a predictable escalation process. You'll initially continue accruing overdraft fees, which many institutions charge daily or per transaction, until you reach a maximum cap. Some banks charge extended overdraft fees if your account remains negative for more than five to seven days, adding extra fees to your balance.

After roughly 30 to 90 days of non-payment, many banks will close your overdrawn account and charge the overdrawn funds off as a loss. At this point, the bank may sell your debt to a collection agency or pursue collections internally. You'll then start receiving calls and letters demanding payment and that collection activity can persist for years, depending on your state's statute of limitations on debt collection.

The closed account will also likely be reported to ChexSystems, a consumer reporting agency that banks use to screen new account applications. A negative ChexSystems report can make it extremely difficult to open a checking account at mainstream banks for a period of five years, forcing you to rely on second-chance banking options or prepaid cards with limited features and higher fees. 

The overdraft debt itself typically isn't reported to the major credit bureaus, though, which keeps the credit damage to a minimum. However, if the debt collection agency files a lawsuit over the unpaid balance and obtains a judgment against you, that judgment could appear on your credit report and damage your credit score.

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When to consider debt relief for an overdrawn account

For many people, an overdrawn bank account is just a symptom of deeper financial instability, and addressing all your debts together can be more effective than tackling them piecemeal. So, if your overdrawn bank account is part of a larger debt problem, especially if you're also carrying high credit card balances or struggling with other bills, it might be time to explore the debt relief solutions available to you. 

Taking this route can potentially help you negotiate settlements for accounts in collections, and that includes old bank debts that have been charged off. While these programs typically focus on unsecured debts like credit cards and medical bills, some include bank debts in their negotiations. If your overdrawn account has already been sent to collections and you're facing multiple debt obligations, this route might reduce your total amount owed and consolidate your payments into one manageable monthly sum.

However, before pursuing debt relief for a recently overdrawn account, it may benefit you to contact your bank directly. Many financial institutions have hardship programs that can waive fees, set up payment plans or work with you to bring the account current. Banks often prefer to resolve these situations internally rather than charging off accounts and selling the debt.

The bottom line

An overdrawn bank account won't just go away on its own. The combination of mounting fees, collection activity and ChexSystems reporting can create financial obstacles that last for years, making it harder to manage your money effectively when you need banking services most. That's why the best approach is typically to address the situation head-on: Contact your bank immediately to discuss payment options or fee waivers, and if you're dealing with multiple debts, consider whether a comprehensive debt relief strategy makes sense for your overall financial situation. Whatever path you choose, though, taking action now demonstrates good faith and opens doors to solutions that ignoring the problem simply won't provide.