Hardship Availability

A participant has contributed $20,000 in pre-tax deferral for the life of the account and a loan was taken in the amount of $7,000. The total cash balance in the participant's account is $15,000. Can the participant apply for a hardship withdrawal for the full account value since technically the basis is $20k? If the full amount is available for hardship withdrawal, is the assumption that the earnings are included in the loan asset account and therefore the withdrawal was correctly limited to solely to the contributions made by the participant?

Yes. But the loan has nothing to do with earnings or not. 
It actually happens frequently that the loan wipes out half the account, then the hardship wipes out the other half. Especially in the not-so-distant days of plans requiring participants to exhaust the plan loans first before hardship distributions.