401k loan default time limit

[rklawns]

I have recently gotten a letter in the mail on a 401k loan I defaulted on over 15 years ago. Apparently the company managing the 401k never finished foreclosing on the loan after my employment was terminated. The account is being held in escrow and has accrued some interest over this time frame.  

The income was reported on my tax return back when the company sent me the 1099 for the income derived from the original default. 

in the time frame between now and the termination of employment I did file for bankruptcy. 

My question is: Can they still foreclose on this loan after 15 plus years or can I calm the principal held in escrow on this account ?

[Tom Poje]

I am a bit confused on the facts.

If you defaulted on the loan 15 years ago and received a 1099R then you should be finished. e.g. you took a 10,000 loan. lets say nothing was ever paid, so you received a 1099 indicating a 10000 distribution. so the issue is finished.

technically the 'unpaid' loan continues to accrue interest, but that would only count against you if you tried to take out a new loan in that 401k plan. (it would reduce the maximum loan permitted)

[Scuba 401]

it seems to me there is nothing left to do. you already got a 1099 and paid the tax. 

[Kevin C]

46 minutes ago, Tom Poje said:

technically the 'unpaid' loan continues to accrue interest, but that would only count against you if you tried to take out a new loan in that 401k plan. (it would reduce the maximum loan permitted)

... and it would have gone off the books completely when you became eligible for a distribution.  The technical term for that is an offset.  If you received a 1099-R for the outstanding balance when the loan was defaulted, you should not have any additional taxable amount from the loan now.  What does the letter say will happen when the loan is "foreclosed"?

[K2retire]

I agree that there shouldn't be anything further to do.

There are a few investment houses that issue participant loans from their own funds, rather than liquidating the participant assets. In those cases, they place a hold on the related participant balance. If they never offset the loan when it was defaulted, the letter could be a notice of an internal accounting entry that they are going to make to fix their oversight.

[ESOP Guy]

The way I read the original fact set there is no interest accruing on the loan. He said he terminated.  So the loan was in fact distributed.  I have always understood the idea of the interest kept accruing on the loan only applied if you defaulted on the loan and there was no distributiable event.  His termination from employment was a distributable event.  That should have ended the existence of the loan in any way share or form.  

In the letter are they demanding payment?

Are they saying if you don't pay more something will happen?  

I find this letter very odd but I don't see how this ought to be your problem.  Do you still have the tax records proving you got the 1099-R and paid the taxes on the defaulted loan?  If so, I would keep them handy in case they start demanding payment or something else.