Giving zakat to a person in debt
A merchant borrowed a huge sum of money for the purpose of trade. However, he lost his trade and became indebted with huge sums of money to the people he borrowed from. He is unable to settle the debt.
A charitable organization wants to help him settle his debts from zakat money. Is this valid? Is this person qualified to receive zakat?
Allah Almighty identifies the recipients of zakat in the Qur`an:
Zakat expenditures are only for the poor and for the needy and for those unemployed to collect [zakat] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveler—an obligation ]imposed] by Allah, and Allah is Knowing and Wise [Al-Tawbah, 60].
This verse proves that a person in debt is among the recipients of zakat.
Imam al-Bajuri, the Shafi'i scholar states in his meta-commentary: "[The term] al-gharem is derived from ghurm because the indebtor is bound to his creditor until he settles the debt. There are [different] categories of indebtors: A person who is overwhelmed by his debt which he accumulated for a lawful matter—willingly or not—(even though he may have spent it on something unlawful); a person who accumulated a debt for an unlawful reason but spent it on something lawful or on something unlawful for which he became indebted and later repented or is thought to have repented. He is given [zakat] because he is in need of it i.e. he does not have the means to settle his debt. This is in contrast to the person who accumulates a debt for something unlawful and spends it but does not repent. If he were not in need, he should not be given zakat."
It is permissible for this man to receive zakat from the mentioned charitable organization to settle his debt if he had not already done so, or if his creditors had not absolved him of it.
Allah Almighty knows best.