What is Negative Equity?

Negative equity occurs when liabilities exceed the value of assets.

How Does Negative Equity Work?

For example, let's assume that Company XYZ has $20 million of total assets and $40 million of total liabilities. Company XYZ has negative equity equal to $40 million - $20 million = $20 million.

Why Does Negative Equity Matter?

When assets fall in value or companies take on too much debt, negative equity can often be the result. Years of losses can also create negative equity, because those losses are carried over to the retained earnings portion of the balance sheet.

The concept of negative equity applies to individuals as much as it applies to companies. For example, homeowners whose houses lose value often find themselves with negative equity in their homes; that is, they owe more to the bank than the house is worth.

Ask an Expert about Negative Equity

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Negative Equity.

Be the first to ask a question

If you have a question about Negative Equity, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

Verified Content You Can Trust
verified   Certified Expertsverified   5,000+ Research Pagesverified   5+ Million Users