Loans after Default

I was looking through the loan regulations and couldn't put my fingers on anything.  Is there anything in the regulations that limits or doesn't allow a participant who has defaulted on a loan previously from taking a subsequent loan?

Thanks in advance!

It comes down to creditworthiness. 

I would check the fine print of your loan policy. The one that is part of the document we prepare for clients goes into detail about it, and even specifically mentions that a a Participant who has defaulted on a prior loan and has not repaid it with interest it NOT creditworthy. 

Not trying to point out the too obvious but the defaulted loan counts as a loan still so if the loan policy limits a person to one loan at a time they couldn't take another loan.  Or at least that is my memory of the rules as it has been over 10 years since I last did a 4k loan.   

1.72(p)-1, Q&A 19(b)(2)

Perfect, thank you Belgarath!

On ‎5‎/‎30‎/‎2019 at 1:52 PM, Belgarath said:

1.72(p)-1, Q&A 19(b)(2)

Stash 026, 1.72(p)-1, note that Q&A-19(b)(1) is also applicable, because even if the new loan would be adequately secured, e.g. with payroll withholding, the defaulted "deemed distributed" loan is treated as outstanding for purposes of the $50,000 loan limit, as well as an plan limit on number of loans, as pointed out by justanotheradmin.

On 5/31/2019 at 4:51 PM, Luke Bailey said:

Stash 026, 1.72(p)-1, note that Q&A-19(b)(1) is also applicable, because even if the new loan would be adequately secured, e.g. with payroll withholding, the defaulted "deemed distributed" loan is treated as outstanding for purposes of the $50,000 loan limit, as well as an plan limit on number of loans, as pointed out by justanotheradmin.

I have a similar situation.  Our loan policy language in the plan document does not directly state that defaulting on a loan prohibits the individual from taking a second loan.  

Given that, if the loan is in default (has been for several years), the currently employed participant has been 1099'd on the loan balance, is under age 59-1/2, the plan allows for more than 1 loan at a time, and a second loan would not exceed the $50,000 threshold (factoring the outstanding balance from the 1st loan), could he take a second loan?

Thanks

Santa Gold, I cannot comment on your individual situation, since I don't have the documents or all the facts, but Treas. reg. 1.72(p)-1, Q&A-19(b) indicates that if a deemed distributed loan (first loan) that has not yet been "really" distributed as a loan offset, including the first loan's accrued post-default  "phantom" interest" up through the date of the new loan disbursement (second loan), leaves enough room, after being subtracted from the "lesser of $50,000 or 50% of account balance" limit of 72(p)(2)(A), for the second loan, then the second loan can be made, if either (a) the second loan is subject to payroll withholding repayment, or (b) there is otherwise adequate security (e.g., the employee pledges something else of value, other than his or her plan interest, to secure the loan). If these conditions are met and, e.g., the payroll withholding repayment option is used, then the loan is deemed distributed if the payroll withholding election is revoked. You might want to review carefully this provision in the regs.