Can an Overdrawn Bank Account Be Sent to Collections?

Posted by Shaun Morgan in BankingJanuary 17, 2023(Last Updated January 18, 2023)5 min read
Key Takeaways
  • Overdrawn bank accounts can be sent to collections if left unpaid.
  • There a few simple steps you can take to avoid being overdraft fees.
  • If you have unpaid debt in collections, it is possible to negotiate with the debt collection agency.
Are you ready to make some real money moves?

We’ve all been there, walking the razor’s edge at the end of the month, and then we slip, and suddenly we have less than $0 in our bank account. Then, to add insult to injury, the bank slaps us with an overdraft fee. Ouch!


Usually, we handle this by depositing more money, but what if you don’t or can’t? Can your overdrawn bank account be sent to collections? The short answer is yes. Let’s look at how this happens and the best way to resolve it.


How Does Your Account Become Overdrawn?


There are two ways that an account can become overdrawn. 


  1. First, if you have a debit card or use a check, you can use more money than you have in your bank account. Some banks have overdraft protection and will decline your purchase if you don’t have a sufficient amount of funds in your account. Without overdraft protection, you can run the risk of overspending.
  2. Second, if you have too many credit cards or bills scheduled to come out of the account at one time, it can become overdrawn. This is even easier to do than overspending on a debit card because a debit card will keep track of how much money you have in real-time, while bills coming out of your bank account can take time to process. 


Recommended Read: You May Need to Fire Your Bank Account


Regardless of how and why your account was overdrawn, banks rarely reverse the overdraft fee. Instead, you get hit with an overdraft or NSF (Non-Sufficient Funds) fee between $25 and $35—and that is for each transaction after your account is overdrawn.


Does Overdraft Fees Show on Your Credit Report?


An overdraft is not reported to your credit. It doesn’t count as a late payment or a defaulted loan yet. Think of it this way, up until you become overdrawn, you have been using your own money. Once you become overdrawn is when you take out a loan. The bank has covered your costs, so now they expect to be paid back.


If you don’t pay back the loan, they can send that loan to collections, just like any other unpaid loan. When this loan is sent to collections, it will be reported on your credit because it’s seen as bad debt.




Bank accounts that are sent to collections are reported to the ChexSystem. ChexSystem is like the credit bureau for bank accounts. More specifically, ChexSystems is a banking reporting agency that gathers information about bank accounts, including checking and savings accounts, with prior issues like overdraft fees, bounced checks, and unpaid negative balances. 


When your bank account is reported to ChexSystem, it can make it harder for you to find another bank account in the future. This is another reason to avoid letting your overdrawn account be sent to collections.


Recommended Reading: Help! My Living Expenses Exceed My Income!


What Should You Do If Your Debt is Sent to Collections?


If you are sent to collections, remember three things.


1. Debt Collection Agency Buys Your Debt


A debt collection firm buys your debt on sale. Usually for four cents for every dollar. That means that if you owed $1,000 to the bank, they only spent $40 to buy it from them.


2. Negotiate Your Debt


When a debt collection agency calls, you aren’t obligated to pay full price. Instead, you can negotiate with them to pay a portion of the loan and even pay on a payment plan. It saves you and them money to negotiate immediately, so you’ll be surprised at how willing they are.


3. Avoid a Legal Battle


The reason they are willing to negotiate is that the alternative is to sue you. This means you don’t want to waste time not negotiating because they can win the lawsuit and gain a legal right to your wages through wage garnishment, but also, they are more willing to negotiate because they would have to pay expensive legal fees and waste time getting your money otherwise.


If you remember these three things after your overdrawn account goes to collections, you’ll be able to handle the problem much better than if you try ignoring it.


Recommended Read: ​​3 Little-Known Facts About Collections

Couple looking at debt collection report

How to Avoid Overdraft Fees


Below are a few strategies to help avoid overdraft fees.


1. Track Your Spending


The first line of defense against overdraft fees is to know how much is coming in and going out. If you consistently track your spending, you won’t have to wonder if you have enough money–you’ll know exactly how much money you have.


2. Ask Your Bank About Overdraft Protection


Many banks have overdraft protection available, but you have to opt-in. The overdraft protection ranges from allowing you to overdraw a certain amount as long as you make it right within a certain number of days to allowing your bank to draw from the multiple accounts you have if one is overdrawn. Regardless of what protections they have, it is a good idea to ask about them to protect your bank account.


3. Find a Bank with Fewer Fees or More Protection


Not all banks are created equal. Some banks thrive on fees, while others are very open about their fees and try to help you avoid them. If you happen to bank with a fee-happy institution, it might be time to make the switch.


You can compare overdraft protection available at each bank or credit union to make your selection. This will take some research, but it is definitely worthwhile.


CapWay Pro Tip: CapWay doesn’t charge its account holders overdraft fees or any other hidden fee. 


4. Cap Your Debit Card Spending


You can set the maximum daily spending limit on your debit card. If you’re worried about spending too much, setting this limit to a low amount can help you avoid overspending.


5. Call Customer Service When You Have an Overdraft Fee.


Sometimes, avoiding an overdraft fee is as simple as calling and asking the customer service representative at your bank to remove it. A valid reason or defense that you present, without emotion or criticism, may help you to remove it. 


Recommended Reading: How to Choose the Best Bank Product


Bank with No Fees


CapWay offers no overdraft fees, no minimum balance fees, and no monthly fees. Along with CapWay offering no banking fees, CapWay has banking features that can help account holders level up with their money. If you’re tired of getting hit with fees, think about switching to a CapWay Money Account.  


If you want to learn more about various branches of money like investing, saving, and wealth building, you can visit the CapWay website or download the mobile app.

Woman looking at her bank account balance


The Money Wrap-Up


Getting an overdraft fee is no fun, but it is even worse when you can’t pay it back. Since your overdrawn checking account can be sent to collections, it is vital that you follow the steps above to avoid an overdrawn account. Your wallet will thank you!

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