Negative Net Worth
To say a person has negative equity is the same as to say they have "negative net worth" (where their liabilities exceed assets). One might come to have negative equity as a result of taking out a substantial, unsecured loan. For example, one might use a student loan to pursue higher education. Although education may increase the likelihood of higher future earnings, that potential is not a financial asset.
In the United States, student loans are non-dischargeable in bankruptcy, and typically lenders provide student loans without requiring security. This stands in contrast to lenders requiring borrowers to have an equity stake in a comparably-sized real estate loan, as described above, secured by both a down payment and a mortgage. An explanation for the willingness of creditors to provide unsecured student loans is that, in a practical sense, American student loans are secured by the borrower's future earnings. This is so since creditors may legally garnish wages when a borrower defaults.
Read more about this topic: Negative Equity
Famous quotes containing the words negative, net and/or worth:
“In a country where misery and want were the foundation of the social structure, famine was periodic, death from starvation common, disease pervasive, thievery normal, and graft and corruption taken for granted, the elimination of these conditions in Communist China is so striking that negative aspects of the new rule fade in relative importance.”
—Barbara Tuchman (1912–1989)
“There is a potential 4-6 percentage point net gain for the President [George Bush] by replacing Dan Quayle on the ticket with someone of neutral stature.”
—Mary Matalin, U.S. Republican political advisor, author, and James Carville b. 1946, U.S. Democratic political advisor, author. All’s Fair: Love, War, and Running for President, p. 205, Random House (1994)
“An hour of winter day might seem too short
To make it worth life’s while to wake and sport.”
—Robert Frost (1874–1963)