Abstract

Purpose Personal bankruptcy is on the rise in Malaysia. The Insolvency Department of Malaysia reported that personal bankruptcy has increased since 2007, and the total accumulated personal bankruptcy cases stood at 131,282 in 2014. This is indeed an alarming issue because the increasing number of personal bankruptcy cases will have a negative impact on the Malaysian economy, as well as on the society. From the aspect of individual’s personal economy, bankruptcy minimizes their chances of securing a job. Apart from that, their account will be frozen, lost control on their assets and properties and not allowed to start any business nor be a part of any company’s management. Bankrupts also will be denied from any loan application, restricted from travelling overseas and cannot act as a guarantor. This paper aims to investigate this problem by developing the personal bankruptcy prediction model using the decision tree technique. Design/methodology/approach In this paper, bankrupt is defined as terminated members who failed to settle their loans. The sample comprised of 24,546 cases with 17 per cent settled cases and 83 per cent terminated cases. The data included a dependent variable, i.e. bankruptcy status (Y = 1(bankrupt), Y = 0 (non-bankrupt)) and 12 predictors. SAS Enterprise Miner 14.1 software was used to develop the decision tree model. Findings Upon completion, this study succeeds to come out with the profiles of bankrupts, reliable personal bankruptcy scoring model and significant variables of personal bankruptcy. Practical implications This decision tree model is possible for patent and income generation. Financial institutions are able to use this model for potential borrowers to predict their tendency toward personal bankruptcy. Social implications Create awareness to society on significant variables of personal bankruptcy so that they can avoid being a bankrupt. Originality/value This decision tree model is able to facilitate and assist financial institutions in evaluating and assessing their potential borrower. It helps to identify potential defaulting borrowers. It also can assist financial institutions in implementing the right strategies to avoid defaulting borrowers.

Highlights

  • Personal bankruptcy cases in Malaysia have been on an upward trend since 2007

  • This showed an increase of 68.8 per cent, with the total accumulated personal bankruptcy cases of 131,282 in 2014. This is alarming because, if the number of personal bankruptcy cases continues to increase, it will have a negative impact on the Malaysian economy and on the society

  • This paper discussed the improvements in the classification of personal bankruptcy using random undersampling to correct the imbalanced data

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Summary

Introduction

Personal bankruptcy cases in Malaysia have been on an upward trend since 2007. In Malaysia, a debtor is declared a bankrupt, pursuant to an adjudication order made by the High Court against the debtor if he/she is unable to pay his/her debts of at least RM30,000 (Malaysia Department of Insolvency, 2017). Datuk Seri Azalina Othman Said, a minister at the Prime Minister’s Department, stated that personal bankruptcy cases often occur due to hire purchase loans, personal loans and housing loans. She added that a total number of 22,581 personal bankruptcy cases, as recorded by the Insolvency Department between 2012 and September 2016, had involved individuals aged between 25 and 34 years old (Bernama, 2016). In 2014, the Insolvency Department of Malaysia reported that personal bankruptcy cases have increased, from 13,238 cases in 2007 to 22,351 cases in 2014 This showed an increase of 68.8 per cent, with the total accumulated personal bankruptcy cases of 131,282 in 2014. From the aspect of individuals’ personal economy, bankruptcy minimizes their chances of securing a job

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