When you owe back taxes, the IRS will hound you until you pay. If you don't have the cash, one option for handling this debt is to make monthly payments through a Chapter 13 bankruptcy plan. While doing this will protect your assets from being confiscated to pay the tax debt, here are two things you need to know before filing a petition.

Some Taxes Can't Be Discharged

Tax debt is a complex beast because whether it can be discharged through bankruptcy depends on its age, the type of tax it is, and when it was assessed by the IRS, among other things. In turn, the amount of dischargeable vs. non-dischargeable tax debt you have will impact your monthly plan payments and how long you have to pay the court.

The reason is non-dischargeable tax debt must be paid in full by the end of your case, whereas the court will pay a small amount on the dischargeable taxes before eliminating the balance when your case resolves. For instance, if you owe the IRS $15,000 but $5,000 of it is eligible for discharge, you'll have to pay all of the $10,000 but most, if not all, of the $5,000 will be written off.

To be eligible for discharge, your tax debt must:

• Be at least three years old
• Be assessed by the IRS a minimum of 240 days before your bankruptcy filing
• Be income taxes only; other types of taxes are not eligible

Additionally, you must have filed a tax return for the years associated with the tax debt at least two years prior to submitting your petition to the court.

As mentioned previously, figuring out how your taxes will be handled in a chapter 13 bankruptcy can be a bit complicated, so it's a good idea to talk to a bankruptcy attorney who can clarify the issue for you.

You May Need to Combine Options

Your Chapter 13 plan payments will be based on how much debt you need to pay off. You must have enough disposable income to get everything paid off within the time allowed (3 to 5 years). If you can't, then your plan may be rejected.

Thus, you may need to use a combination of methods to manage your tax burden. For instance, you may need to file a Chapter 7 first to get rid of eligible dischargeable tax debt before filing a Chapter 13. Another option is to negotiate a reduced amount with the IRS before declaring bankruptcy, so there's less to pay off.

A bankruptcy attorney can advise you on the best strategy to manage your debt, so contact one in your local area for a consultation.