When you overdraw your bank account, your bank attempts to contact you by phone or mail. If you fail to bring the balance back into the positive within a few days, your bank can place a freeze on the account. An account freeze does not actually mean the bank closes the account but it does prevent you from making any further withdrawals. Normally, when you make a deposit into a frozen account to settle the balance owed, the back releases the freeze and you can continue to use the account as normal.
If you do not make a deposit into your overdrawn account and fail to make arrangements with your bank to settle the debt, your bank can charge-off the account. A charge-off normally occurs 60 days after the account goes into the negative. A charge-off involves your bank closing the account and using bank funds to bring the balance owed back to zero. The bank then provides the collections department with your information and the collections department opens a case number in your name.
The collections department of a bank attempt to collect debts owed to the bank. If you fail to settle the matter, the bank may choose to sell the debt to an outside collection agency. In addition, banks notify credit bureaus and consumer reporting agency, ChexSystems about charged off accounts. ChexSystems compiles consumer reports that banks can access any time you attempt to open an account. Reports of charged-off bank accounts can stay on consumer credit reports for up to seven years.
You can settle the debt by paying the amount owed to the bank or the collection agency that bought the debt. When you settle the debt, the bank notifies the credit reporting agencies and your consumer credit reports are updated to show that you have paid the debt in full. You can then re-open a new bank account with the same bank or a new bank. Most banks do not allow people who have outstanding balances on charged-off accounts to open new accounts but once you settle the debt you can normally open a new account without a problem.