Negative equity is a term used to refer to when the value of an asset used to secure a loan is less than the outstanding balance on the loan. In short, when someone buys a house on a loan and the house price falls drastically after the purchase (as result of property price crash/subprime crisis), the buyer is left with a massive mortgage he has to pay off, and a low house valuation by the bank. He permanently loses the difference between the two prices, and this often leads to bankruptcy and house repossession.
Bankruptcy can free you from overwhelming debts so you can make a fresh start, but:
- You lose control of your assets.
- You cannot obtain credit for over £250 without the permission from the lender.
- You cannot act as a company director.
- You cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
- You cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
- You may not practice as a Charted Accountant / Lawyer.
- You may not act as a Justice of the peace (JP).
- You may not become an member of parliament.
- You may not become a member of the local authority.
- Your credit is affected for many years after the annulment.
- You may be publicly examined in court.
If you are bankrupt it can be very difficult to buy/own your own home again. If you are still young you should avoid bankruptcy but if you are older there may be advantages to declaring bankruptcy as it can help give you peace of mind for a while and it will settle all your debts.