Interesting point matburt, but it doesn’t always apply. For example, someone could timeout in their only ongoing ladder game. Or you could get the peculiar situation where both players have timed out recently, so neither can use each other to move up.
An idea: What if they simply dropped to the lowest position where they’d still be allowed to challenge for their old position? That would seem a fair compromise to me. Of course it still doesn’t address the issue of implicitly punishing their opponents who were hoping to move up before the timeout occurred, but yebellz’s proposal would handle that particular problem.
(To expand on the peculiar situation mentioned above: if both players timed out recently, then the lower ranked player should only be eligible to move up to to the higher ranked player’s new position, which is of course further down the ladder than it was previously.)