My colleague, Wendell Sherk, a bankruptcy lawyer in St. Louis, has written an interesting blog post on the Bankruptcy Law Network about bad checks, bankruptcy and Chex Systems. Clients and potential clients frequently ask me whether bankruptcy can wipe out a bad check. As Wendell points out, issuing a bad check is a crime in most jurisdictions. The Bankruptcy Code specifically excludes debts arising from criminal activity from discharge.
As a practical matter, however, I rarely have problems with bad checks less than $200. I suspect that for most vendors it is not worth the hassle of pursuing criminal charges for such a small amount, especially when the person writing the bad check has just filed for bankruptcy.
However, it is certainly possible for an angry vendor to pursue criminal charges. The larger the bad check, the greater the likelihood that you would face a criminal problem. I therefore advise my clients that they should strongly consider finding the money to pay any vendor to whom a bad check was issued.
Wendell’s Bankruptcy Law Network post also discusses Chex Systems, which is a type of credit reporting system that collects data on bad checks. Wendell notes that a bad Chex Systems report may create problems for you in getting a bank account after bankruptcy – in fact, a history of bad checks may be more damaging to your bank account chances than the bankruptcy itself. Read Wendell’s post for more information about Chex Systems, how to get a Chex Systems report and some suggestions about how to reduce the negative impact of bad checks.
The big picture here is that bad checks are a different type of debt that can have serious repuercussions (i.e. jail time or a crimimal record). Bankruptcy cannot cure a bad check. Understanding the consequences of a bad check may help you decide which bills to pay if you have limited cash available.