Actually, defaulting on the $4k loan balance just makes it immediately it taxable income and subject to a 10% early-distribution penalty unless a penalty exception applies. It does NOT satisfy the loan and you will still be responsible for paying off the loan or receiving an offset distribution when you become eligible to receive distributions from the plan, perhaps upon separation from service. Since the loan is not satisfied by the deemed distribution and it still needs to be repaid, because you've already paid the tax on this money your repayments will become after-tax basis in the plan the won't be taxed again when later distributed.
(From the question I assume that you are under age 59½ and are still employed by this employer, otherwise you could receive an offset distribution that would satisfy the loan and you would have until the due date, including extensions, of your tax return for the year of the distribution to come up with the money to complete a rollover of the offset distribution to avoid any penalty and to continue to defer income taxes.)
