It is not permissible to discharge a debt from zakah
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Q: If you have a debt owed by a sick person or a poor person who is unable to pay, is it permissible for you to discharge it from your zakah?
A: That is not permissible; because it is obligatory to grant the insolvent person a respite until Allah makes it easy for him to pay, and because zakah is giving and bestowing, as Allah the Exalted said: [Surat al-Baqarah:43]. Discharging the debt of the insolvent person is not giving or bestowing, but rather it is a release from liability. Also, the intention behind it is to protect one's wealth, not to show compassion to the poor person.
However, it is permissible to give him from the zakah because of his poverty and need, or because of his debt. And if he returns to you that amount or part of the debt he owes, there is no harm, provided that this was not by prior agreement or condition between you and him, but rather he did it of his own accord. May Allah guide everyone to understanding in the religion and steadfastness upon it.
A: That is not permissible; because it is obligatory to grant the insolvent person a respite until Allah makes it easy for him to pay, and because zakah is giving and bestowing, as Allah the Exalted said:
And establish prayer and give zakah
وَأَقِيمُواْ الصَّلاَةَ وَآتُواْ الزَّكَاةَHowever, it is permissible to give him from the zakah because of his poverty and need, or because of his debt. And if he returns to you that amount or part of the debt he owes, there is no harm, provided that this was not by prior agreement or condition between you and him, but rather he did it of his own accord. May Allah guide everyone to understanding in the religion and steadfastness upon it.
Source
binbaz.org.sa
The Arabic text is copied verbatim from the original source, without any edits.