What happens if a plan loan is not repaid according to its terms?
The loan might be considered in default for non-payment, participant misrepresentation or a change in financial status such as bankruptcy. A default will be considered a “deemed distribution” which is a taxable event. Until the final disposition of the loan, you remain obligated for any unpaid principal and accrued interest. Consult the plan document or a tax advisor for specific information about your circumstances.
