diff --git a/ledger/babbage/rules.go b/ledger/babbage/rules.go
index bb1d9c7a..16c32bc1 100644
--- a/ledger/babbage/rules.go
+++ b/ledger/babbage/rules.go
@@ -184,11 +184,19 @@ func UtxoValidateCollateralEqBalance(
 		}
 		collBalance += utxo.Output.Amount()
 	}
-	// Subtract collateral return amount
+
+	// Skip validation if no valid collateral UTxOs were found
+	// This avoids subtracting from zero and prevents uint underflow
+	if collBalance == 0 {
+		return nil
+	}
+
+	// Subtract collateral return amount with underflow protection
 	collReturn := tx.CollateralReturn()
-	if collReturn != nil {
+	if collReturn != nil && collBalance >= collReturn.Amount() {
 		collBalance -= collReturn.Amount()
 	}
+
 	if totalCollateral == collBalance {
 		return nil
 	}
diff --git a/ledger/babbage/rules_test.go b/ledger/babbage/rules_test.go
index 2e262075..6606ab18 100644
--- a/ledger/babbage/rules_test.go
+++ b/ledger/babbage/rules_test.go
@@ -1449,6 +1449,27 @@ func TestUtxoValidateCollateralEqBalance(t *testing.T) {
 			}
 		},
 	)
+	// no valid collateral UTxO, should skip and not underflow
+	t.Run("no valid collateral UTxO, should skip and not underflow", func(t *testing.T) {
+		// Ledger state with NO matching UTxO
+		missingUtxoLedgerState := test.MockLedgerState{
+			MockUtxos: []common.Utxo{}, // empty
+		}
+		testTx.Body.TxCollateralReturn = &babbage.BabbageTransactionOutput{
+			OutputAmount: mary.MaryTransactionOutputValue{
+				Amount: testCollateralReturnAmountBad,
+			},
+		}
+		err := babbage.UtxoValidateCollateralEqBalance(
+			testTx,
+			testSlot,
+			missingUtxoLedgerState,
+			testProtocolParams,
+		)
+		if err != nil {
+			t.Errorf("Should skip collateral return validation if collBalance == 0. Got error: %v", err)
+		}
+	})
 }
 
 func TestUtxoValidateTooManyCollateralInputs(t *testing.T) {