How should haram or doubtful money and fidyah payments be handled and paid?

Summary

If lawful and unlawful funds can be separated, the unlawful money is returned to its owner and the remainder is lawful to keep and spend. If the mixture cannot be distinguished, it is permissible to use it according to Imam al-Ghazali, while money known to come from a haram source is advised to be returned to its owner if possible, used for public welfare, given to Baitulmal, or given as charity on the owner's behalf. Someone who was able to make up Ramadan fasts but delayed until the next Ramadan must pay fidyah along with the qadha, but a person unable to do so because of a continuing excuse until another Ramadan begins owes no fidyah for that delay. Paying fidyah in cash is allowed by later Shafii scholars or by following the Hanafi school with correct valuation.

Written in our own words from the original fatwa — check the source before acting on it.