Hardship Distribution / Medical Debt

Participant had a  medical procedure 2 years ago and financed the procedure.  The participant now wants to take a hardship to pay off the loan.  It is clear that the financing was for the medical treatment.

My initial response was "two years ago was just too long."  Anyone have a different thought?  So for example, what bills has she prioritized over this one? Did she pay off credit cards ahead of this? In other words at what point does it convert from a medical expense to decision regarding cash flow and personal financial management?

This type of question surfaces a lot, and there are differing opinions. But it may be instructive to take a look at 1.401(k)-1(d)(3)(iv)(C), which states that it isn't an immediate and heavy financial need if it can be reasonably relieved by borrowing from "commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need." Something to consider, anyway.

P.S. - note that this is referring to a non-safe harbor definition of immediate and heavy financial need.

ie. she has already done that so that according to the regs the hardship itself has been relieved. She has a different hardship now, one of consumer debt, which is not a hardship.  That's essentially the logical conclusion, but it is good to know that it's not only logic but also generally written into the regs.

I suppose the answer should not be different depending on the source of the financing.  So for example, what if she did pay for it on her credit card or on a HELOC?  Should she have been at a disadvantage merely for not segregating the debt?  This is a rhetorical question - the answer should be "no".

Even if using safe harbor definition, I would say "no" if it has been 2 years. IMHO...

I agree with the "no" answer

If the employee were to file bankruptcy wouldn't that allow her to meet the hardship burden?