What is Bounced Check?

Example

Let us take the example of Peter. He has $50 in total in his savings account maintained with Bank of America and needs to pay Mr. Alex $75. So now issues a check to Alex for $75 for the Bank of America.

Alex presented the check issued by Peter in the Bank of America. However, as the amount in Peter’s savings account is $50 only, and the check amount is $75, the bank did not process it, and the check was returned. This non-processing of the check is due to insufficient funds in Peter’s account and is referred to as a check bouncing.

Why Does the Check Get Bounced?

The following are the reasons: –

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  • Insufficient fund is the major reason when the amount in your bank account is lower than the check issued.It can bounce when the data on the check is incorrect such as the account holder’s name, etc.Overwriting is also one reason. If the check is overwritten, it leads to the bouncing of the check.Mismatch of signature, i.e., when the signature on the issued check is different from the account holder’s signature as per bank records.Damaged check becomes disfigured, and banks do not accept them the same.Mismatch of the amount written in words differs from the amount reported in numbers.

Rules

When the check gets bounced, the bank sends the “check return memo” to the issuer specifying the reasons for non-payment. The issuer or the holder of the check can resubmit the check within three months of the date of the check’s return by the bank. If the issuer fails to make the payment, the payeePayeeA payee refers to a person, business, government, or any other entity that receives payment for providing goods or services.read more can sue the payer legally.

This rule applies if the payer makes some payment and the bank bounces due to insufficient funds.

Bounced Check Penalty

When the check is dishonored, the bank immediately sends the “check return memo” to the issuer specifying the reason for the check’s return. Repeated dishonors of checks attract many penalties and offenses under many acts.

According to the legal provisions, bouncing the check is a criminal offense. Furthermore, it can result in imprisonment, a monetary penalty, or both. Also, credit score gets negatively impacted due to which one can face many difficulties in acquiring a loan.

How to Avoid Check Bounce?

Before issuing any check, the issuer must ensure that they have a sufficient amount in their bank account. Also, they should properly go through various reasons that lead to the bouncing of checks and verify that they have correctly entered the inputs and the required information. And they should also handle the check properly as a damaged check leads to the bouncing of the check and the default by the payer.

Impact

There is a negative impact:

  • A bounced check hampers the payee’s credit score, and one can face difficulty getting a loan in the future.When the bouncing of checks continues for any customer repeatedly, the bank can restrict the issuance of the checkbook to that customer.If there is any loan active in the bank and the check for the repayment of EMI bounces, the bank has the right to issue a legal notice. It can also deduct money from the active bank account of the customer.

This article is a guide to Bounced Check and its definition. Here, we discuss the bounced check penalty, rules, an example, and how to avoid them along with why checks get bounced. You may learn more about financing from the following articles: –

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