Praise be to Allaah.
It is permissible for a person to give zakaah to someone who
owes him money but cannot pay him back, so long as he does not stipulate
that he must give it back to him.
Al-Nawawi (may Allaah have mercy on him) said in
al-Majmoo’ (6/198): But if he gives him zakaah on condition that he
gives it back to him in payment of his debt, the giving is not valid and the
zakaah is not waived, according to scholarly consensus. End quote.
Shaykh Ibn ‘Uthaymeen (may Allaah have mercy on him) was
asked: is it permissible for the one who is owed money to give zakaah to the
poor person who owes him money on condition that he give it back to the
giver to pay off his debt?
He replied: If you are owed money by a poor person and you
give him your zakaah, there is nothing wrong with that even if he gives it
back to you later on, but stipulating that he must do that is not
permissible, because if you do that, then we know that you only wanted to do
that so that you would get back your money that is owed to you of the poor
person, and it is not permissible when paying zakaah to serve one’s own
interests or the interests of anyone else. End quote.
Majmoo’ Fataawa (18/378).
And Allaah knows best.