We examine the influence of behavioral characteristics on the design of debt covenants. We find that firms with overconfident CEOs face tighter restrictions on their ability to make future investments, acquisitions, and raise additional debt financing. These restrictions are partially mitigated when firms with overconfident CEOs have greater information transparency, a better performance record, and investment opportunities. Interestingly, we find only weak evidence for the effects on cost of debt. Overall, our study highlights the role of debt covenants in mitigating the effects of behavioral characteristics incremental to other firm and CEO specific factors documented in the prior literature.