Because of a lawsuit, we were required to file for bankruptcy (chapter 7). We made a hardship loan from my wife's 401K plan. Doesn't this qualify for a hardship loan?

[JosephDan2000]

I have read that you may not have to pay taxes on money borrowed from a 401K plan if it was due to a hardship.

[Opus 17]

You always pay tax on 401(k) withdrawals, because the contributions were never taxed.  Sometimes, you can be exempt from the 10% penalty for early withdrawal.  The list of available exemptions is here.  There are no general exceptions for "hardships", but maybe some of your expenses fall into an allowable category.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distri...

[TomD8]

A 401K loan and a hardship withdrawal are two different things.

If you take a loan from your 401K, then the money is tax-exempt as long as you repay the loan on time.

If you take a hardship withdrawal from your 401K, the funds do not have to be paid back.  But you must pay income taxes on the amount of the withdrawal.  If you are under age 59 1/2, you may also have to pay an additional 10% penalty.  The penalty may be waived under certain circumstances.

[Opus 17]

A loan is never taxable as long as you pay it back.

401(k) loans are required by law to be repaid by payroll deduction.  These deductions are not new contributions (although you might make new contributions at the same time).

If you separate from the company, you have 60 days to repay the entire loan balance.  Any part not repaid is taxable income to you, and may also be subject to an early withdrawal penalty.  If you can't repay the loan within 60 days, you also have the option of making a deposit to a private IRA or or the retirement plan at a new job and calling it a rollover of the loan funds rather than a new contribution.  Then on your tax return you can report that you rolled over the funds instead of paying tax on a distribution.

But if you don't repay or rollover the loan, the money you keep is a taxable distribution, there are no exceptions for hardships.