Wage Earner Plan (Chapter 13 Bankruptcy): Lessons for Australians in 2025

Personal debt pressures are rising in Australia, and policymakers are watching global approaches to debt relief more closely than ever. The US Wage Earner Plan—known as Chapter 13 Bankruptcy—offers some compelling lessons for Aussies exploring their options in 2025.

Understanding the Wage Earner Plan (Chapter 13 Bankruptcy)

The Wage Earner Plan, or Chapter 13 Bankruptcy, is a US legal process that allows individuals with regular income to restructure their debts through a court-approved repayment plan. Unlike Chapter 7 bankruptcy (which liquidates assets), Chapter 13 lets people keep their property while making affordable payments to creditors over three to five years.

• Eligibility: Designed for individuals with consistent income who can commit to regular repayments.
• Repayment Plan: Debtors propose a plan to pay back all or part of their debts. The court and creditors must approve it.
• Asset Protection: Filers can keep their home, car, and other essential assets if they stick to the plan.

This structure provides a lifeline for wage earners who are struggling but want to avoid losing everything and are able to pay down their debts in an orderly way.

How Does This Compare to Australian Debt Solutions?

Australia does not have a direct equivalent to Chapter 13, but we have our own debt management frameworks, including Part IX (Debt Agreements), Part X (Personal Insolvency Agreements), and bankruptcy under the Bankruptcy Act 1966. In 2025, the Australian government is reviewing insolvency rules to make them more accessible and less punitive for individuals, particularly in the wake of rising cost-of-living pressures and interest rate volatility.

• Debt Agreements (Part IX): Available to individuals with lower levels of debt and assets. Similar to a structured repayment plan but with strict eligibility criteria.
• Personal Insolvency Agreements (Part X): More flexible, allowing for larger debts but requiring creditor approval.
• Bankruptcy: Last-resort option that can mean loss of assets and long-term credit consequences.

Unlike Chapter 13, Australian options can be more restrictive, and there’s less flexibility in retaining key assets, particularly the family home. Current policy debates in 2025 are focusing on whether to introduce a model closer to the US system, offering more protection and structured support for wage earners.

Real-World Examples and 2025 Policy Updates

In the US, Chapter 13 has helped many wage earners keep their homes during financial setbacks—especially following the COVID-19 pandemic and recent economic shocks. For example, a single parent with a steady job but mounting medical bills could file under Chapter 13, halt foreclosure, and pay back debts over five years while staying in their home.

In Australia, the increase in mortgage arrears and personal insolvency filings in 2025 has reignited interest in reforming debt relief laws. The Federal Treasury’s recent consultation paper proposes:

• Shorter bankruptcy periods (down from three years to one year in some cases)
• Greater access to debt agreements for middle-income earners
• Potential for court-supervised repayment plans that mirror some aspects of Chapter 13

These discussions reflect the growing recognition that wage earners need tailored solutions that allow them to recover financially without losing everything.

Is a Chapter 13-Style Solution Right for Australia?

While Australia’s legal and financial context is different from the US, the core idea behind Chapter 13—a fair, structured repayment plan for wage earners—resonates with many Australians facing debt stress. Policymakers are weighing the benefits of introducing more flexible, asset-protective solutions as part of a broader insolvency reform agenda in 2025.

For Australians considering debt relief, it’s crucial to understand all available options. Monitoring ongoing policy updates and reforms will be key, as the landscape is likely to shift further in the coming year.