Personal Bankruptcy Prediction Using Logistic Regression Model

Abstract

According to the Insolvency Department of Malaysia, as of December 2023, 233,483 Malaysians are currently involved in bankruptcy cases due to their defaults on hire purchase loans, credit card loans, personal loans, housing loans, and business loans. This is indeed a critical issue because the growing number of personal bankruptcy cases will hurt the Malaysian economy as well as society. From an individual's economic perspective, bankruptcy minimizes their chances of getting a job. Apart from that, their accounts will be frozen, they will lose control of their properties and assets, and they will not be allowed to start any business or be a part of any company's Board of Directors. Bankrupts also will be rejected from any loan application. This paper examines this problem by developing a personal bankruptcy prediction model using the logistic regression technique. This paper defines "bankrupt" as terminated members who failed to settle their loans. The sample comprised 24,546 cases with 17% settled cases and 83% terminated cases. The data included a dependent variable, i.e., bankruptcy status (Y=1(bankrupt), Y=0(non-bankrupt)), and 12 predictors. Upon completion, this paper succeeds in coming out with a reliable personal bankruptcy prediction model and significant variables of personal bankruptcy. The findings of this paper are very beneficial and significant to creditors, banks, the Malaysia Department of Insolvency, potential borrowers, members of AKPK, and society in general in raising awareness of personal bankruptcy risks and such information may help them to take preventive measures in minimizing the number of personal bankruptcy cases.