Lowest Intermediate Balance Rule Flashcards
1
Q
The “lowest intermediate balance rule”
A
is a tracing mechanism used to determine the extent to which a creditor’s security interest extends to the balance in a debtor’s deposit account that holds both proceeds and non-proceeds. The rule requires a review of the activity (debits and credits) in the deposit account. Under the rule, the debtor is presumed to spend its own money (non-proceeds) first. If, under the rule, the debtor is deemed to have spent some of the creditor’s proceeds, the creditor can “recover” those proceeds through subsequent deposits if, but only if, those subsequent deposits themselves represent proceeds.
