Section 6.4 Earmarked Funds

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

1. (§6.4) Earmarked Funds

The “earmarking doctrine” is a judicially created defense to preference liability. It derives from the threshold requirement that, to be deemed preferential, a transfer must be “of an interest of the debtor in property.” In re Interior Wood Prods. Co.,
986 F.2d 228, 231–32 (8^th Cir. 1993). According to the earmarking doctrine, there is no avoidable transfer of the debtor’s property interest when a new lender and the debtor agree to use new funds to pay a specified antecedent debt, the agreement’s terms are actually performed, and the transaction as a whole does not diminish the debtor’s...