Earmarking Doctrine Law and Legal Definition

Ear marking doctrine is a principle of bankruptcy law that when a new lender makes a loan to enable a debtor to pay off a specified creditor, the funds are specifically set aside for that creditor so that, if the debtor lacks control over the disposition of the funds, they do not become part of the debtor's estate and thus subject to a preference. The doctrine gets the name probably because the loan has been earmarked, i.e., specifically designated, by the debtor to pay a specific creditor.