The use of debt agreements to avoid bankruptcy has boomed over the last decade and needs reforming, Attorney-General Christian Porter says.
The agreements allow debtors to regain and maintain control over personal affairs.
The number of debt agreements jumped from 6560 a year in 2007 to 12,640 last year, while bankruptcy numbers dropped by almost 10,000 a year.
Mr Porter said legislation introduced to the lower house on Wednesday was the first major reform of the system since 2007 and was in response to evidence of consumer exploitation by the industry.
"It will boost confidence in the professionalism of debt agreement administrators, deter unscrupulous practices and enhance transparency," he said.
The reforms include introducing new payment-to-income ratios for debtors and doubling the asset threshold at which debtors can access the system, allowing those with equity in family homes to access the scheme.
"Secondly we are bolstering the authority of the official receiver in bankruptcy to intervene in exceptional cases and refuse to accept debt agreement proposals which would cause undue financial hardship to vulnerable debtors," he said.
The debt agreement industry would have six months to implement the proposed changes.
