If your checking account goes negative, the first thing that happens is a fee, usually around $27 to $35 per transaction, and from there the consequences escalate on a predictable timeline: daily fees while the balance stays below zero, account closure and charge-off within about 60 days, a negative mark on ChexSystems that follows you for five years, and eventually collection calls, a possible lawsuit, and wage garnishment or a bank levy if a court enters a judgment against you. How far it goes depends almost entirely on whether you bring the balance back to zero and how quickly.
The Fees That Hit First
Two kinds of fees show up right away. An overdraft fee is charged when the bank pays a transaction despite the shortfall, pushing your balance negative. A non-sufficient funds (NSF) fee is charged when the bank rejects the transaction and sends it back unpaid. You pay either way; the difference is whether the payment goes through.
Overdraft fees have historically averaged around $35, though the average has dropped to roughly $27 as some banks have cut or eliminated the charge.1FDIC.gov. Overdraft and Account Fees Capital One, Citibank, and Ally have removed overdraft fees entirely; Bank of America has reduced its fee to $10. NSF fees have shifted even more sharply, with Bank of America, Wells Fargo, U.S. Bank, PNC, and Capital One all eliminating them between 2021 and 2022. Most accounts also cap the number of overdraft or NSF fees the bank will charge in a single day, though the cap varies.
If the balance stays negative, a second layer of fees kicks in. Many banks add a daily sustained overdraft fee, often around $5 to $7, once your account has been below zero for a set number of consecutive business days, commonly five.1FDIC.gov. Overdraft and Account Fees A small shortfall can grow into a much larger debt quickly this way.
When the Bank Closes the Account
Banks do not keep negative accounts open indefinitely. Federal guidance directs banks to charge off an overdrawn balance when they consider it uncollectible, and no later than 60 days after the account first went negative.2National Credit Union Administration. Overdraft Regulations and Guidance Charge-off is an accounting step: the bank records the debt as a loss and closes the account. It does not wipe out what you owe. You still owe the money; you just no longer have a banking relationship with that institution.
The ChexSystems Mark
Once the bank closes your account, it reports the closure to specialty consumer reporting agencies. The two main ones for deposit accounts are ChexSystems and Early Warning Services. These are not the traditional credit bureaus that track loans and credit cards; they track how people manage checking and savings accounts, including bounced checks, unpaid negative balances, and involuntary closures.
A negative entry on your ChexSystems report generally stays there for five years.3Office of the Comptroller of the Currency. How Long Does Negative Information Stay on ChexSystems and EWS Because most banks pull these reports before approving a new account, that mark can make it very hard to open a checking account elsewhere during that period. Paying off the balance does not automatically remove the entry, though some banks will update the record to show a zero balance once the debt is settled, which improves your chances of being approved somewhere new.
Collections and Lawsuits
After closure, the bank usually tries to collect through its own recovery team using letters and calls. If that fails, the bank may sell the debt to a third-party collection agency, which pays a fraction of the balance for the right to pursue you for the full amount. If collection efforts still fail, the original bank or the debt buyer can file a lawsuit in civil court. A ruling against you produces a judgment, which is a legal order confirming the debt and unlocking more aggressive tools like wage garnishment and bank account levies.
When a third-party collector contacts you, federal law gives you protections. Within five days of first contact, the collector must send a written notice with the amount owed, the name of the original creditor, and a statement of your right to dispute the debt. You have 30 days to dispute in writing, and the collector must pause collection until it provides verification.4Federal Trade Commission. Fair Debt Collection Practices Act Collectors cannot call at unreasonable hours, threaten violence, use obscene language, or misrepresent the amount. Violations can be reported to the Consumer Financial Protection Bureau or pursued in court.
Limits on Garnishment and Levies
Even with a judgment, a creditor cannot take everything. Federal law caps wage garnishment for consumer debts at the lesser of 25 percent of your disposable earnings for the week, or the amount by which your weekly disposable earnings exceed 30 times the federal minimum wage ($7.25 per hour, putting that floor at $217.50 per week).5Office of the Law Revision Counsel. 15 U.S. Code 1673 – Restriction on Garnishment Earn less than $217.50 per week in disposable income and your wages cannot be garnished at all for this type of debt. Many states impose stricter limits.
A judgment creditor can also pursue a bank levy, freezing money in your other accounts. Certain federal benefits are automatically protected. If your account receives direct deposits from Social Security, Supplemental Security Income, VA benefits, or federal retirement, the bank must shield two months’ worth of those deposits from any garnishment order without any action from you.6U.S. Department of the Treasury. Guidelines for Garnishment of Accounts Containing Federal Benefit Payments State law may exempt additional funds beyond that.
How Long a Creditor Can Sue
Every state has a statute of limitations setting a deadline to sue over unpaid debts. For most consumer debts, including an overdrawn account, the window falls between three and six years, though some states allow longer.7Consumer Financial Protection Bureau. Can Debt Collectors Collect a Debt Thats Several Years Old Once it expires, a collector who files suit is violating federal law. The statute only bars lawsuits, though. It does not erase the debt: a collector can still contact you and ask for payment, and the balance can keep appearing on your reports within their reporting windows. In some states, a partial payment restarts the clock, so be careful about paying anything on old debt without checking your state’s rules.
If the Bank Forgives the Balance
If the bank ultimately cancels or forgives the overdrawn balance rather than pursuing it, you may owe taxes on the forgiven amount. The IRS treats canceled debt as taxable income. When a creditor forgives $600 or more, it must send you a Form 1099-C, and you must report that amount as income for the year the cancellation occurred.8IRS.gov. Topic No. 431, Canceled Debt – Is It Taxable or Not
There is an exception. If you were insolvent when the debt was canceled, meaning your total debts exceeded the fair market value of your total assets, you can exclude some or all of the canceled amount using IRS Form 982. Even for a modest overdraft, check whether any portion was formally forgiven, because failing to report a 1099-C can trigger IRS penalties.
Getting a Bank Account Again
A negative ChexSystems record does not lock you out of banking. Many banks and credit unions offer second-chance checking accounts designed for people who cannot qualify for a standard account because of past problems.
These accounts provide the basics — a debit card, direct deposit, online banking — but come with restrictions. Expect a monthly maintenance fee, limits on debit card spending, and often no check-writing privileges. Most do not offer overdraft services at all; a transaction that would push the balance negative is simply declined. After managing the account responsibly for a set period, often 12 months, many banks let you graduate to a standard checking account.