What is a bank overdraft?
A bank overdraft is flexible borrowing facility on a bank current account which is repayable on demand.
A bank overdraft does not actually result in cash flowing into a business. Instead, the individual is allowed to let its bank account become “overdrawn” – i.e. in the red, up to a certain agreed on maximum amount.
A good way to think about a bank overdraft is to imagine a bank current account which can have either a positive (i.e. cash in the bank) or negative (i.e. cash owed to the bank) status.
The maximum amount that the bank account can go into the red is known as the overdraft facility.
It is important to realise that a bank overdraft is essentially a short-term source of finance designed to cover temporary shortages of cash. If a person finds themselves using the expensive overdraft month after month, then it ought to consider whether a cheaper, long-term bank loan would be a more suitable source of finance.
Lawsuits are filed to collect these debts:
In the case of outstanding bank overdrafts, the creditor may have the right to file a lawsuit against the consumer to force payment of the debt through a judgment.
The lawsuit must be served upon the debtor according to the service of process rules of the state in which the consumer resides. Then, the consumer can defend the lawsuit by asserting various defences such as fraud in the creation of the account, or that the amount sought after is incorrect or has been paid, to name just a few.
If the case is not properly defended, then the creditor will obtain a judgment in its favour. When the creditor has a judgment, it may seek involuntary means to force payment such as wage garnishment, asset attachment or lien on the property.
How debt review can help those with a bank overdraft
Using a Debt counsellors like ezDebt we will formally review your finances and develop a suitable monthly budget by negotiating with your creditors on your behalf
- Enables clients to make one monthly debt repayment
- Stops creditors from hassling you
- Decreases judgements against you
- Prevents you from declaring bankruptcy
- Maps out the path towards becoming debt free
If you’ve fallen behind with your rent payments, you should take action quickly to deal with the situation.