The distribution is deemed to have occurred in the year you defaulted, not the year the money was paid. If you are age 55 or older in the year you were terminated, you would be exempt from the 10% penalty for early withdrawal. Otherwise, you will owe the penalty, plus all withdrawals from a pre-tax 401(k) are always subject to regular income tax.
For the future (and for other readers) you would have had 60 days from the date of termination to repay the remaining balance to avoid a deemed distribution with tax and penalties. If you could have arranged a short term loan, you might have paid less interest than the penalty, plus had the money available to grow for your future retirement needs.
