What is the ruling on forgiving a debt and considering it part of Zakah?

     All praise is due to Allah and peace and blessings be upon His Messenger. It is permissible to give Zakah to the debtor, as he is entitled to it for two reasons: poverty and debt. Allah Almighty says:

     “Indeed, zakah is only for the poor, the needy, the ones collecting it, the ones whose hearts must be won over, the ransoming of slaves, the ones in debt, for the cause of Allah, and the traveler in need. [This is] an ordinance from Allah. Allah is All Knowing, All Wise” (Qur’an, 9: 60).

     Ibn Muflih said: It is permissible for a person to pay his Zakah to a person who owes him money to settle his debt. This is either by giving the Zakah to the debtor to manage all his debts, or by taking the debt from the Zakah and giving the debtor the rest of the money to repay the rest of his debts. Here, we would like to remind you of Allah’s saying: “Whatever you expend [in charity], He will compensate it [for you]. He is the Best Provider” (Qur’an, 34: 39).