Most people have heard of going to jail for not paying your debts, but did you know that the same applies to bank accounts? This article explores what happens if you don’t pay your bank account debit and whether or not you can be sent straight to jail.
Most types of debt are dischargeable in bankruptcy. This means that somewhere down the line, a debtor has legal protection against creditors getting a hold of their assets through tough measures such as wage garnishments and liens on the property.
What is Bank Account Overdraft?
Overdraft is the term for when you try to spend more money than you have in your bank account. When this happens, banks will give you the option of no matter what happens with the transaction. This means if your purchase costs $100, but you only have $10 in your account, that bank will let the purchase go through and come back later to ask you to pay the difference.
This practice can be very dangerous if it goes on for a long time without being paid off – this was how some people got into big trouble during the 2008 housing crisis by buying homes they couldn’t afford. Banks would allow them to make these purchases without asking too many questions because they wanted their share of mortgages sold each year, leading some homeowners into financial trouble they didn’t mean to be in.
Overdraft Protection helps you avoid this by linking your checking account to a second savings account or credit card, where the bank will take these funds if you spend more than is currently available in your account. That way, even if the payment goes through, you’re not spending any of your money.
Can you go to Jail for a Negative Bank Account?
Bank accounts, though, unlike other forms of assets that a person may have (such as cars or houses), cannot always be protected from going into the collection while going through bankruptcy proceedings. There is an exception; however, most states allow a judge to freeze a person’s bank account if they have an outstanding debt with a financial institution.
When a court orders a bank account to be frozen, the debtor cannot access any money in the account until this order has been lifted. The creditor can then seize whatever funds are left in the said account when it gets unfrozen. In other words, your bank cannot protect your money from being frozen by court order even if you’re going through bankruptcy proceedings.
Overdrawing your bank account is rarely a criminal offense. It depends on your intentions and your state’s check fraud laws. According to the National Check Fraud Center, all states can impose jail time for overdrawing your account, but the reasons for overdrawing an account must support criminal prosecution.
In most cases, though, the only debts that would cause an individual’s bank accounts to be seized or frozen are unpaid taxes or past due child support payments owed directly to government institutions such as the IRS and Department of Child Services (an office in many states dedicated to the enforcement of child support).
There are some exceptions to this, though. For example, if you owe delinquent funds or fees on a credit card and the payment is not up-to-date, your bank account may be seized and frozen as well. Other types of debts can cause an account freeze because, in most cases, the creditor has the right to protect themselves against losses when their client owes someone else money.
Even if you have never done so before in your life, it would still be in your best interest to double-check everything in your accounts when you’re checking them for outstanding transactions. This way, if there are any problems with payments due on your accounts, you’ll catch it before it gets worse. You can then try negotiating with the creditor for a more extended time before the account is frozen.
It would also be helpful to keep all of your financial documents organized in one place, including receipts and papers that are related to any outstanding debts you currently have. You may even want to consider keeping copies of these documents on hand in an external hard drive or flash drive if your home does not offer enough room for storage. That way, if anything ever happens to the originals, you will still have copies available.
At first reading, this looks like it could be very bad information for anyone who has ever had a bank account – but the article goes on to explain that there are lots of exemptions, so it mostly applies to people who owe taxes or child support, usually because they are unemployed.
Last Words
While the article above is helpful, it may be difficult to fix problems if they have already happened. If you are in the process of filing for bankruptcy or you are having tax difficulties, be sure to talk to a specialist that can help with these matters!
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