Missed payments on a 401(k) loan lead to classifying the loan as a taxable distribution. Beyond making the payment, there is no way around that. If the money is classifed as a taxable distribution, there will be penalties in addition to taxes involved.

However - there is something known as a "hardship distribution" and it sounds like you may qualify for that. If so, you could take the distribution, paying off the loan in the process. A hardship distribution IS a taxable distribution, but is excused from penalties if deemed qualified. You would want your hardship distribution "grossed up" for taxes (with appropriate amounts for state and federal withheld) so that you wouldn't get hammered when taxes are due.

To qualify for this little gem, there are guidelines set forth - the money must be for:
1) Purchase of primary residence, or
2) To prevent eviction from your residence, or
3) Post-secondary tuition for you or your dependents, or
4) Medical bills for you or your dependents, or
5) Other expenses deemed acceptable by the IRS.

Make lemonade from this lemon by getting the distibution classed as a hardship. Good luck.