Earmarking is the procedure through which individuals or groups allot funds to particular uses.
Earmarking in organizations has to do with how businesses or governments plan their budgets. Mental accounting is an example of self-earmarking one’s cash. For people, earmarking can give money a symbolic worth based on who or what it is intended for.
According to bankruptcy law, certain loaned monies may be excluded from a bankrupt party’s assets if they were given to the borrower 90 or fewer days before to filing for bankruptcy and were given with the sole purpose of paying a particular creditor.
By earmarking monies, it is guaranteed that they will go to the designated creditor and not be susceptible to claims from other creditors who have been given priority in the bankruptcy procedures. According to the doctrine, the money never truly belonged to the bankrupt party because there was no net drop in the bankrupt party’s asset base.