Do I pay zakat on money that people owe me?

Why the debtor's situation decides it

The scholars do not treat a debt as one thing. They ask what the money is doing: is it within your reach, or is it out of it? A debt owed by a man who can pay is, in effect, still your wealth — you can demand it whenever you wish. A debt owed by a man who cannot pay is closer to something lost.

Ibn 'Uthaymeen sets out the reasoning plainly: the owner of the debt "owns the right to take it and to release the debtor from it," so it remains his property and he is the one who purifies it. But where the debtor is insolvent, he argues the creditor is legally unable to claim the money at all, and Allah says:

"And if someone is in hardship, then let there be postponement until a time of ease."— Qur'an 2:280

Since the creditor is commanded to wait, the money is not genuinely at his disposal — so no zakat is owed on it while it sits unpaid.

When the debtor can pay

If the debtor is solvent and willing — mūsir bādhil — the debt is treated like a trust you have left with him. You owe zakat on it each year it remains outstanding, and you have a choice in how you discharge it:

• Pay it annually with your other wealth: you include the debt in your zakat calculation each year, as though the money were in your own hand.
• Delay until you receive it: you wait, then pay zakat for all the years that passed once the money reaches you.

Ibn 'Uthaymeen notes that if a man holds a hundred thousand owed to him, he "purifies it every year" — either alongside his wealth or upon receipt. The Permanent Committee states the same: where the debtor is solvent and pays on demand, zakat is due "every time a year passes over it while it remains in the debtor's keeping."

When the debtor cannot pay

If the debtor is insolvent (mu'sir) or persistently delaying (mumāṭil), the position is different. Ibn 'Uthaymeen's preferred view is that no zakat is due while the debt is unpaid, because the creditor cannot lawfully demand it. Once he receives it, he pays zakat for one year only — even if the money sat with the debtor for ten years. He explains that receiving it resembles harvesting what has come out of the earth: it is purified when it is obtained.

Some scholars said he should simply begin a fresh year from the day of receipt. Ibn 'Uthaymeen prefers paying for one past year, calling it "more precautionary and more clearing of one's responsibility," and adds that it is a form of gratitude for the money finally being recovered.

What the schools hold

My sources show a genuine disagreement here, and it is worth knowing where each position stands.

IslamWeb takes the position that zakat on a debt is obligatory on the creditor in every case, but grants that where the debtor is insolvent you may postpone payment until you receive the money, then purify it for the years that passed. The Hanbali madhhab's famous position — that zakat is due even on a debt owed by the most insolvent person — is the one Ibn 'Uthaymeen and al-Shanqīṭī both step away from, and Ibn 'Uthaymeen calls the middle view the correct one.

What this means for you

Work out which category your debtor falls into, because everything follows from it:

• He can pay and does not dispute it: include the amount in your zakat each year, or wait and pay for the past years when you receive it.
• He is genuinely unable to pay: nothing is due now. When the money reaches you, pay zakat for one year, then start a fresh year on it.
• He is able but stalling: treat him as insolvent for zakat purposes — no zakat until you actually receive the money.
• You are unsure which he is: the safer course is to pay when you receive it, for one year, then begin a new cycle.

One point worth separating out: you may not write off a poor man's debt and count it as your zakat. Ibn 'Uthaymeen reports Ibn Taymiyyah's statement that this is not permitted "without any disagreement," because zakat is a taking and a giving — the poor man must actually receive, and a cancelled debt is neither.

Key takeaways

• Zakat is owed on money lent out, but the debtor's ability to pay determines when you discharge it.
• If the debtor is solvent and willing, zakat is due every year — paid with your wealth or upon receipt.
• If the debtor is insolvent or stalling, no zakat is due until you receive the money; then you pay for one year and begin a new cycle.
• Writing off a poor debtor's debt as your zakat is not valid.
• The Hanbali school's well-known position is stricter than the view Ibn 'Uthaymeen and al-Shanqīṭī prefer; both are reported above.

And Allah knows best.