Collecting on a Dishonored Check

A check that comes back stamped "insufficient funds" or "account closed" is more than an inconvenience. It is a broken promise to pay, and New York law gives the holder of that check several tools to enforce it: statutory penalty damages, an accelerated lawsuit procedure reserved for instruments like checks, and, in the right circumstances, the pressure that comes from the drawer's own criminal exposure. Used correctly and in the right order, these tools recover money quickly. Used incorrectly, they can forfeit the statutory penalty or expose the creditor to liability of its own.

What Counts as a Dishonored Check

A check is dishonored when the bank on which it is drawn refuses payment. The most common reasons are insufficient funds, a closed account, no account at all, or a stop-payment order. Under New York's Uniform Commercial Code, a check operates as conditional payment of the underlying debt. When the check bounces, the condition fails and the original debt revives, so the payee can sue on the check itself, on the underlying obligation, or both.

Before doing anything else, present the check promptly and, if it is returned for insufficient funds, consider redepositing it once. Banks will generally accept a check for a second presentment, and a meaningful percentage clear on the second try. Keep the returned check and the bank's dishonor notice. Those documents are the core of every remedy discussed below.

Statutory Damages Under General Obligations Law § 11-104

New York General Obligations Law § 11-104 gives the holder of a dishonored check a claim for the face amount of the check plus additional statutory damages. The amount of the penalty depends on why the check bounced:

• Insufficient funds: the drawer is liable for the face amount plus additional damages of up to twice the face amount or $400, whichever is less.
• No account or closed account: the drawer is liable for the face amount plus additional damages of up to twice the face amount or $750, whichever is less.

The penalty is not automatic. The statute conditions it on a proper written demand:

1. The check must have been presented to the drawer's bank and dishonored.
2. The holder must send the drawer a written demand for payment by certified mail. The notice must track the language set out in the statute, identifying the check, the reason for dishonor, and warning the drawer of the additional liability the statute imposes.
3. The drawer must then fail to pay the face amount of the check within thirty days after the demand is mailed.

If the drawer pays the face amount within the thirty-day window, the statutory penalty disappears. The statute also excuses a drawer who can show the dishonor resulted from a bank error or from a justifiable, good-faith belief that the account held sufficient funds. Note the statute's limits: it applies to checks dishonored for insufficient funds or lack of an account. A check returned because the drawer stopped payment does not trigger the § 11-104 penalty, though the holder can still sue on the check and the underlying debt.

A Worked Example

Suppose a contractor accepts a $6,000 check from a customer on March 1. The contractor deposits it on March 3, and it is returned for insufficient funds on March 7. On March 10, the contractor mails the customer a demand letter, by certified mail, in the form the statute requires. The customer does not pay by April 9, thirty days after mailing. The contractor may now sue for $6,400: the $6,000 face amount plus the $400 statutory maximum (twice the face amount would be $12,000, so the $400 cap controls). If the same check had been drawn on a closed account, the claim would be $6,750.

Suing on the Check: CPLR 3213 Fast-Track Judgment

New York gives holders of dishonored checks a procedural advantage most creditors do not have. Under CPLR 3213, a plaintiff suing on "an instrument for the payment of money only" may begin the case with a motion for summary judgment in lieu of a complaint. A check qualifies. Instead of filing a complaint, waiting for an answer, and slogging through discovery, the plaintiff serves a summons with the motion papers, and the court decides the case on the return date unless the drawer raises a genuine defense supported by evidence.

In practice, the proof is simple: the check itself, the bank's dishonor notice, and an affidavit from the payee. Common defenses, such as a vague claim that the underlying work was defective, frequently fail because the drawer signed an unconditional order to pay. Where the defense is thin, a CPLR 3213 motion can convert a bounced check into an enforceable money judgment in a matter of months.

For smaller checks, small claims court is often the better forum. Small claims parts in New York City accept claims up to $10,000; limits are lower in city, town, and village courts elsewhere in the state. Filing fees are modest and lawyers are optional, though a demand letter from counsel before filing often produces payment without any suit at all.

The statute of limitations for an action on a check is six years under CPLR 213(2). Do not let the check sit; witnesses disappear, accounts close, and drawers move.

Criminal Exposure: Penal Law § 190.05

Issuing a bad check is a class B misdemeanor under Penal Law § 190.05 when the drawer issues a check knowing there are insufficient funds and intending or believing payment will be refused. Penal Law § 190.10 supplies two presumptions that make these cases provable: knowledge of insufficient funds is presumed if the drawer had no account or insufficient funds when the check was issued, and intent is presumed if the drawer fails to make the check good within ten days after receiving notice of dishonor. Payment within that ten-day window is an affirmative defense under Penal Law § 190.15.

A word of caution for creditors: the criminal statute belongs to the district attorney, not to you. Threatening criminal prosecution in a collection letter to extract payment can itself violate New York law. A properly drafted demand letter states the drawer's civil liability, including the § 11-104 penalty, and stops there. Report the check to law enforcement if you choose, but keep the criminal process separate from the civil demand.

Problem Drawers: Corporations, Dissolved Entities, and Absent Debtors

Checks drawn on a business account raise their own questions. If the check was signed by an officer on the corporation's account, the corporation is ordinarily the liable party, not the individual signer, unless the signature or the circumstances make the officer personally responsible. If the business has since gone under, the claim does not necessarily die with it; New York permits claims against wound-up entities and, in some cases, against those who received their assets. We explain those options in our discussion of collecting against a dissolved corporation in New York.

If the drawer has left the state or keeps assets beyond New York's borders, a New York judgment on the check is still worth obtaining, because judgments travel. Our page on collecting out-of-state debts through New York proceedings covers how a judgment entered here can be enforced against a debtor who has moved on.

Practical Steps When a Check Bounces

1. Preserve the original check and the bank's return notice.
2. Redeposit once if the reason is insufficient funds.
3. Send the § 11-104 demand by certified mail, in the statutory form, and calendar the thirty-day deadline.
4. If unpaid, sue: small claims for modest amounts, or a CPLR 3213 motion for larger checks.
5. After judgment, enforce it through restraining notices, income executions, and bank levies.

You can contact the Law Offices of Albert Goodwin by phone at 212-233-1233 or by email at [email protected].