diff --git a/fineract-core/src/main/java/org/apache/fineract/infrastructure/configuration/api/GlobalConfigurationConstants.java b/fineract-core/src/main/java/org/apache/fineract/infrastructure/configuration/api/GlobalConfigurationConstants.java
index 979eea042ce..e7413303aa6 100644
--- a/fineract-core/src/main/java/org/apache/fineract/infrastructure/configuration/api/GlobalConfigurationConstants.java
+++ b/fineract-core/src/main/java/org/apache/fineract/infrastructure/configuration/api/GlobalConfigurationConstants.java
@@ -79,6 +79,7 @@ public final class GlobalConfigurationConstants {
     public static final String ASSET_OWNER_TRANSFER_OUTSTANDING_INTEREST_CALCULATION_STRATEGY = "outstanding-interest-calculation-strategy-for-external-asset-transfer";
     public static final String ALLOWED_LOAN_STATUSES_FOR_EXTERNAL_ASSET_TRANSFER = "allowed-loan-statuses-for-external-asset-transfer";
     public static final String ALLOWED_LOAN_STATUSES_OF_DELAYED_SETTLEMENT_FOR_EXTERNAL_ASSET_TRANSFER = "allowed-loan-statuses-of-delayed-settlement-for-external-asset-transfer";
+    public static final String BLOCK_TRANSACTIONS_ON_CLOSED_OVERPAID_LOANS = "block-transactions-on-closed-overpaid-loans";
 
     private GlobalConfigurationConstants() {}
 }
diff --git a/fineract-core/src/main/java/org/apache/fineract/infrastructure/configuration/domain/ConfigurationDomainService.java b/fineract-core/src/main/java/org/apache/fineract/infrastructure/configuration/domain/ConfigurationDomainService.java
index e7a98fb2cc2..34e694041ba 100644
--- a/fineract-core/src/main/java/org/apache/fineract/infrastructure/configuration/domain/ConfigurationDomainService.java
+++ b/fineract-core/src/main/java/org/apache/fineract/infrastructure/configuration/domain/ConfigurationDomainService.java
@@ -151,4 +151,6 @@ public interface ConfigurationDomainService {
     boolean isImmediateChargeAccrualPostMaturityEnabled();
 
     String getAssetOwnerTransferOustandingInterestStrategy();
+
+    boolean isBlockTransactionsOnClosedOverpaidLoansEnabled();
 }
diff --git a/fineract-loan/src/main/java/org/apache/fineract/portfolio/loanaccount/serialization/LoanTransactionValidator.java b/fineract-loan/src/main/java/org/apache/fineract/portfolio/loanaccount/serialization/LoanTransactionValidator.java
index 43527f9a335..6fda77e6beb 100644
--- a/fineract-loan/src/main/java/org/apache/fineract/portfolio/loanaccount/serialization/LoanTransactionValidator.java
+++ b/fineract-loan/src/main/java/org/apache/fineract/portfolio/loanaccount/serialization/LoanTransactionValidator.java
@@ -98,4 +98,6 @@ void validateRefund(Loan loan, LoanTransactionType loanTransactionType, LocalDat
     void validateManualInterestRefundTransaction(String json);
 
     void validateClassificationCodeValue(String codeName, Long transactionClassificationId, DataValidatorBuilder baseDataValidator);
+
+    void validateLoanNotClosedOrOverpaidForTransactions(Loan loan);
 }
diff --git a/fineract-progressive-loan/src/main/java/org/apache/fineract/portfolio/loanaccount/service/ProgressiveLoanTransactionValidatorImpl.java b/fineract-progressive-loan/src/main/java/org/apache/fineract/portfolio/loanaccount/service/ProgressiveLoanTransactionValidatorImpl.java
index 385d07220c7..0ffed48ab0b 100644
--- a/fineract-progressive-loan/src/main/java/org/apache/fineract/portfolio/loanaccount/service/ProgressiveLoanTransactionValidatorImpl.java
+++ b/fineract-progressive-loan/src/main/java/org/apache/fineract/portfolio/loanaccount/service/ProgressiveLoanTransactionValidatorImpl.java
@@ -506,6 +506,11 @@ public void validateLoanGroupIsActive(Loan loan) {
         loanTransactionValidator.validateLoanGroupIsActive(loan);
     }
 
+    @Override
+    public void validateLoanNotClosedOrOverpaidForTransactions(Loan loan) {
+        loanTransactionValidator.validateLoanNotClosedOrOverpaidForTransactions(loan);
+    }
+
     @Override
     public void validateActivityNotBeforeLastTransactionDate(Loan loan, LocalDate activityDate, LoanEvent event) {
         loanTransactionValidator.validateActivityNotBeforeLastTransactionDate(loan, activityDate, event);
diff --git a/fineract-provider/src/main/java/org/apache/fineract/infrastructure/configuration/domain/ConfigurationDomainServiceJpa.java b/fineract-provider/src/main/java/org/apache/fineract/infrastructure/configuration/domain/ConfigurationDomainServiceJpa.java
index 26b48b2f067..677926b3eba 100644
--- a/fineract-provider/src/main/java/org/apache/fineract/infrastructure/configuration/domain/ConfigurationDomainServiceJpa.java
+++ b/fineract-provider/src/main/java/org/apache/fineract/infrastructure/configuration/domain/ConfigurationDomainServiceJpa.java
@@ -548,4 +548,9 @@ public String getAssetOwnerTransferOustandingInterestStrategy() {
         return getGlobalConfigurationPropertyData(
                 GlobalConfigurationConstants.ASSET_OWNER_TRANSFER_OUTSTANDING_INTEREST_CALCULATION_STRATEGY).getStringValue();
     }
+
+    @Override
+    public boolean isBlockTransactionsOnClosedOverpaidLoansEnabled() {
+        return getGlobalConfigurationPropertyData(GlobalConfigurationConstants.BLOCK_TRANSACTIONS_ON_CLOSED_OVERPAID_LOANS).isEnabled();
+    }
 }
diff --git a/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/serialization/LoanTransactionValidatorImpl.java b/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/serialization/LoanTransactionValidatorImpl.java
index 65c55ee8c4a..ecd22726fc6 100644
--- a/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/serialization/LoanTransactionValidatorImpl.java
+++ b/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/serialization/LoanTransactionValidatorImpl.java
@@ -37,6 +37,7 @@
 import org.apache.commons.lang3.StringUtils;
 import org.apache.fineract.infrastructure.codes.domain.CodeValue;
 import org.apache.fineract.infrastructure.codes.domain.CodeValueRepository;
+import org.apache.fineract.infrastructure.configuration.domain.ConfigurationDomainService;
 import org.apache.fineract.infrastructure.core.api.JsonCommand;
 import org.apache.fineract.infrastructure.core.data.ApiParameterError;
 import org.apache.fineract.infrastructure.core.data.DataValidatorBuilder;
@@ -111,6 +112,7 @@ public class LoanTransactionValidatorImpl implements LoanTransactionValidator {
     private final LoanDownPaymentTransactionValidator loanDownPaymentTransactionValidator;
     private final LoanDisbursementValidator loanDisbursementValidator;
     private final CodeValueRepository codeValueRepository;
+    private final ConfigurationDomainService configurationDomainService;
 
     private void throwExceptionIfValidationWarningsExist(final List<ApiParameterError> dataValidationErrors) {
         if (!dataValidationErrors.isEmpty()) {
@@ -666,6 +668,14 @@ public void validateLoanGroupIsActive(final Loan loan) {
         }
     }
 
+    public void validateLoanNotClosedOrOverpaidForTransactions(Loan loan) {
+        boolean blockTransactions = configurationDomainService.isBlockTransactionsOnClosedOverpaidLoansEnabled();
+        if (blockTransactions && (loan.isClosed() || loan.getStatus().isOverpaid())) {
+            throw new GeneralPlatformDomainRuleException("error.msg.loan.transaction.not.allowed.on.closed.or.overpaid",
+                    "Monetary transactions are not allowed on closed or overpaid loan accounts", loan.getId());
+        }
+    }
+
     protected void validateLoanHasNoLaterChargeRefundTransactionToReverseOrCreateATransaction(Loan loan, LocalDate transactionDate,
             String reversedOrCreated) {
         for (LoanTransaction txn : loan.getLoanTransactions()) {
diff --git a/fineract-provider/src/main/resources/db/changelog/tenant/changelog-tenant.xml b/fineract-provider/src/main/resources/db/changelog/tenant/changelog-tenant.xml
index ffab7d77f6b..568536ad692 100644
--- a/fineract-provider/src/main/resources/db/changelog/tenant/changelog-tenant.xml
+++ b/fineract-provider/src/main/resources/db/changelog/tenant/changelog-tenant.xml
@@ -226,4 +226,6 @@
     <include file="parts/0205_add_read_familymembers_permission.xml" relativeToChangelogFile="true" />
     <include file="parts/0206_transaction_summary_with_asset_owner_classification_name_bug_fix.xml" relativeToChangelogFile="true" />
     <include file="parts/0207_add_allow_full_term_for_tranche.xml" relativeToChangelogFile="true" />
+    <include file="parts/0208_add_configuration_block_transactions_on_closed_overpaid_loans.xml" relativeToChangelogFile="true" />
 </databaseChangeLog>
+
diff --git a/fineract-provider/src/main/resources/db/changelog/tenant/parts/0208_add_configuration_block_transactions_on_closed_overpaid_loans.xml b/fineract-provider/src/main/resources/db/changelog/tenant/parts/0208_add_configuration_block_transactions_on_closed_overpaid_loans.xml
new file mode 100644
index 00000000000..22400130d8d
--- /dev/null
+++ b/fineract-provider/src/main/resources/db/changelog/tenant/parts/0208_add_configuration_block_transactions_on_closed_overpaid_loans.xml
@@ -0,0 +1,41 @@
+<?xml version="1.0" encoding="UTF-8"?>
+<!--
+
+    Licensed to the Apache Software Foundation (ASF) under one
+    or more contributor license agreements. See the NOTICE file
+    distributed with this work for additional information
+    regarding copyright ownership. The ASF licenses this file
+    to you under the Apache License, Version 2.0 (the
+    "License"); you may not use this file except in compliance
+    with the License. You may obtain a copy of the License at
+
+    http://www.apache.org/licenses/LICENSE-2.0
+
+    Unless required by applicable law or agreed to in writing,
+    software distributed under the License is distributed on an
+    "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+    KIND, either express or implied. See the License for the
+    specific language governing permissions and limitations
+    under the License.
+
+-->
+<databaseChangeLog xmlns="http://www.liquibase.org/xml/ns/dbchangelog"
+                   xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance"
+                   xsi:schemaLocation="http://www.liquibase.org/xml/ns/dbchangelog http://www.liquibase.org/xml/ns/dbchangelog/dbchangelog-4.3.xsd">
+    <changeSet author="fineract" id="1" context="postgresql">
+        <sql>
+            SELECT SETVAL('c_configuration_id_seq', COALESCE(MAX(id), 0)+1, false ) FROM c_configuration;
+        </sql>
+    </changeSet>
+    <changeSet author="fineract" id="2">
+        <insert tableName="c_configuration">
+            <column name="name" value="block-transactions-on-closed-overpaid-loans"/>
+            <column name="value"/>
+            <column name="date_value"/>
+            <column name="string_value"/>
+            <column name="enabled" valueBoolean="false"/>
+            <column name="is_trap_door" valueBoolean="false"/>
+            <column name="description" value="If enabled: monetary transactions are blocked on closed and overpaid loan accounts"/>
+        </insert>
+    </changeSet>
+</databaseChangeLog>