What Is a Bad Check? Definition, What Happens, and Example

What Is a Bad Check?

A bad check refers to a check that cannot be negotiated because it is drawn on a nonexistent account or has insufficient funds. Writing a bad check, also known as a hot check, is illegal.

Banks normally charge a fee to anyone who writes a bad check unintentionally. The punishment for trying to pass a bad check intentionally ranges from a misdemeanor to a felony. The exact penalty depends on the amount and the state in which the check is written. Cashiers checks and certified checks are less susceptible to this possibility.

Understanding Bad Checks

Checks are essentially an IOU for money. By writing a check, you promise the payee that you have enough money in your account to cover the check. When you write a bad one, the bank will bounce it because there are insufficient funds in your account.

Bad checks are often written inadvertently by people who are simply unaware that their bank balances were too low. Banks and vendors frequently charge fees for bounced checks, sometimes exceeding the amount for which the check was written. The bank normally adds a nonsufficient funds (NSF) charge to your account, which can be as high as $35 for each bad check written. You may also be on the hook for any charges the payee incurs as a result of your bad check.

But there are people out there who try to write and pass checks even though they know there's not enough money in their accounts. As mentioned above, this constitutes fraud and is, therefore, a crime. For people who commit these crimes, there are penalties above and beyond NSF charges. A crime is generally not committed if a post-dated check is presented. That's because the check is a promise to pay in the future—whether there are insufficient funds at the time is irrelevant.

Bad Checks and the Law

There may be instances where you write a bad check and don't even realize it. Perhaps you thought you had enough money in your account. Or maybe you thought the check already cleared and you spent the money. Life happens, and so make mistakes, so you're probably not going to be penalized too heavily—you can probably expect to pay a bank fee or two. But that may not be the case for people who knowingly write bad checks.

Writing bad checks is a crime. Penalties for people who tender checks knowing there are insufficient funds in their accounts vary by state. Some states require an intent to fraud. But in the majority of states, the crime is considered a misdemeanor. If the check amount exceeds certain thresholds, the crime may be treated as a felony. Civil penalties apply in all cases, with a common penalty amount equivalent to the check's face value, a multiple of the check amount with a cap, or the check amount plus court and attorney fees.

How to Avoid Writing a Bad Check

Keeping up to date with your finances is much easier now than it ever was before. Online banking can help you avoid writing bad checks. By getting ready access to your account, you can view their balance more frequently, and you can verify if and when any checks you write clear your account.

If you know a check you've written is not going to clear, contact the payee and speak to them about holding the deposit until a later date. It may be embarrassing to do so, 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 charges from both your bank and payee.

Another option is to add overdraft protection to your account. Overdraft acts as a cushion or insurance policy if you need to cover expenses but don't have enough money in your account. When you go into overdraft, the bank covers any charges—up to a certain limit—allowing you to go below a $0 balance because this option is essentially a short-term loan, the bank charges interest on the overdraft balance as well as a fee for having the service on the account.

If You Receive a Bad Check

You may not even know you received a bad check for several weeks—at least until the bank notifies you or you check your account. When a check bounces, the bank will reverse it from your account, so you'll see a debit for the same amount of the written check. If you've spent the money, you'll probably end up with an overdraft.

The first thing to do is contact the person who wrote the check and inform them it bounced. Don't assume it was done on purpose because it may be an innocent mistake. Once you've contacted them, you may be able to try to deposit the check again. If the check still bounces after that, you may have legal recourse to recover the funds by taking the writer to court.

The Bottom Line

Adding overdraft protection will help prevent accidental overspending and bounced checks. If you receive a bad check, contact the person who wrote it and determine why it was returned. Sometimes mistakes happen, but make sure it isn't a common occurrence, and of course, willingly writing bad checks is illegal. If you write a bad check unintentionally, contact the recipient and your bank immediately to pay any fees caused by the bad check and what you owe.