Praise be to Allaah.  

The one who has any “zakatable” wealth must pay zakaah on it, when one year has passed since he acquired it, even if he has debts, according to the more correct of the two scholarly opinions, because of the general meaning of the evidence that zakaah is obligatory upon everyone who has wealth on which zakaah is due, if one year has passed since he acquired it, even if he has debts. 

The Prophet (peace and blessings of Allaah be upon him) used to command his agents to take zakaah from those who owed zakaah, and he did not tell them to ask them whether they had any debts or not. If having debts meant that one did not have to pay zakaah, the Prophet (peace and blessings of Allaah be upon him) would have told his agents to ask the people who were paying zakaah whether they had any debts or not. 

Majmoo’ Fataawa wa Maqalaat Mutanawwi’ah by Shaykh ‘Abd al-‘Azeez ibn Baaz, 14/51 

“… But if you pay off the debt with cash in hand before one year has passed, there is no zakaah on what you have spent to pay off the debt; rather zakaah is due on whatever is left, if one year has passed and it reaches the minimum threshold (nisaab).” 

Shaykh Ibn ‘Uthaymeen (may Allaah have mercy on him) was asked about a person who has capital worth two hundred thousand riyals and owed a debt of two hundred thousand riyals, and was paying it off at a rate of ten thousand per year – does he have to pay zakaah? 

He replied: 

Yes, he has to pay zakaah on the wealth that is in his possession, because the texts which speak of the obligation of zakaah are general in meaning, and do not make any exceptions. No exception is made for one who is in debt. As the texts are general in meaning, we have to follow them. 

Moreover, zakaah must be paid on wealth, because Allaah says (interpretation of the meaning): 

“Take Sadaqah (alms) from their wealth in order to purify them and sanctify them with it, and invoke Allaah for them. Verily, your invocations are a source of security for them; and Allaah is All-Hearer, All-Knower”

[al-Tawbah 9:103] 

And according to the hadeeth narrated by al-Bukhaari from Ibn ‘Abbaas (may Allaah be pleased with him), when the Prophet (peace and blessings of Allaah be upon him) sent Mu’aadh to Yemen he said: “Tell them that Allaah has enjoined zakaah from their wealth.” So Allaah and His Messenger have stated that zakaah has to do with the wealth itself, not with the person’s obligations towards others; debt has to do with personal obligations towards others. They are two separate issues, so zakaah must be paid from the wealth that is in your possession, and the debt is a personal responsibility.  

Each person must fear his Lord and pay zakaah on the wealth that is in his possession, and seek the help of Allaah to pay the debt that he owes, saying: O Allaah, pay off the debt that I owe and make me independent of means. 

Perhaps if he pays zakaah on the wealth that is in his possession, that may be a means of bringing blessing to this wealth and causing it to grow, so that he may discharge his duty of paying his debts. If he withholds zakaah, however, that may be a cause of his becoming poor, so that he always sees himself as being in need and not able to pay zakaah. Praise Allaah if He makes you one of the givers and not one of the takers. 

Majmoo’ Fataawa al-Shaykh Ibn ‘Uthaymeen, 18/39 

And he said, in another Fatwa on the same issue (18/38): 

If the debt is currently due and repayment is being demanded, and he wants to pay it off, in that case we say: Pay off the debt, then pay zakaah on what is left after that if it reaches the minimum threshold at which zakaah becomes due. 

That is supported by what the Hanbali fuqaha’ said about zakaat al-fitr. They said that being in debt does not mean that one should not pay it. 

Similarly, it is reported that ‘Uthmaan (may Allaah be pleased with him) used to say during the month of Ramadaan: “This is the month of your zakaah, but whoever is in debt, let him pay it off.” This indicates that if a debt is currently due to be paid, and the debtor wants to pay it off, that should take precedence over zakaah. But if a debt is not yet due to be paid off, the zakaah must still be paid, beyond a doubt. 

And it says in Fataawa al-Lajnah al-Daa’imah, 9/189: 

The correct scholarly view is that being in debt does not mean that zakaah should not be paid. The Prophet (peace and blessings of Allaah be upon him) used to send his agents to collect the zakaah, and he did not tell them to see if the people were in debt or not.