Personal bankruptcy prediction using machine learning techniques

Brygała Magdalena () and Korol Tomasz ()
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Brygała Magdalena: Faculty of Management and Economics, Gdansk University of Technology, Narutowicza 11/12, 80-233 Gdańsk, Poland
Korol Tomasz: Faculty of Management and Economics, Gdansk University of Technology, Narutowicza 11/12, 80-233 Gdańsk, Poland

Economics and Business Review, 2024, vol. 10, issue 2, 118-142

Abstract: It has become crucial to have an early prediction model that provides accurate assurance for users about the financial situation of consumers. Recent studies have focused on predicting corporate bankruptcies and credit defaults, not personal bankruptcies. Due to this situation, the present study fills the literature gap by comparing different machine learning algorithms to predict personal bankruptcy. The main objective of the study is to examine the usefulness of machine learning models such as SVM, random forest, AdaBoost, XGBoost, LightGBM, and CatBoost in forecasting personal bankruptcy. The study relies on two samples of households (learning and testing) from the Survey of Consumer Finances, which was conducted in the United States. Among the models estimated, LightGBM, CatBoost, and XGBoost showed the highest effectiveness. The most important variables used in the models are income, refusal to grant credit, delays in the repayment of liabilities, the revolving debt ratio, and the housing debt ratio.

Keywords: personal bankruptcy; SVM; random forest; AdaBoost; XGBoost; LightGBM; CatBoost; SHAP (search for similar items in EconPapers)
JEL-codes: G17 G51 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ecobur:v:10:y:2024:i:2:p:118-142:n:1004

DOI: 10.18559/ebr.2024.2.1149

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