Short answer
Yes, if the person in debt is eligible: people weighed down by debt are one of the eight groups in the Quran. In the Hanafi school you either give the money to them, or pay their lender for them with their permission. Paying it without their knowledge, or cancelling a debt they owe you, does not count as zakat.
A debtor (gharim) whose debts leave him without the nisab beyond his needs may receive zakat. Zakat must pass into ownership, so it is paid to the debtor, or to the creditor at the debtor's request as his agent. Writing off a debt owed to you is not zakat.
The four schools agree on this.
Explanation
The Quran names those in debt among the eight groups who may receive zakat, and the four schools agree on this. In the Hanafi school a person counts as in debt for zakat when, after paying what he owes, he would not have the nisab left beyond his basic needs. Typical cases are rent arrears, medical bills, a family loan taken for essentials, or credit card debt that has grown out of control.
How to pay it:
- Give the money to the person, with your intention of zakat, and let them settle the debt.
- Or, if they ask you to, pay the landlord, hospital or lender directly for them. You are then acting as their agent, and it counts.
- You do not have to tell them the money is zakat.
What does not count in the Hanafi school: paying someone's debt without their request or knowledge, since they never took ownership of it; and simply cancelling a loan they owe you and calling it zakat. See zakat on money owed to you.
Many scholars say to give priority to people whose debts came from real needs, and to be careful with debts run up on sin, such as gambling, until the person has stopped. Helping someone out of debt is one of the best uses of zakat; the Prophet ﷺ allowed a man who had taken on a debt for others to ask for help until it was paid.
The evidence
Quran, Surah At-Tawba 9:60
۞ إِنَّمَا ٱلصَّدَقَٰتُ لِلْفُقَرَآءِ وَٱلْمَسَٰكِينِ وَٱلْعَٰمِلِينَ عَلَيْهَا وَٱلْمُؤَلَّفَةِ قُلُوبُهُمْ وَفِى ٱلرِّقَابِ وَٱلْغَٰرِمِينَ وَفِى سَبِيلِ ٱللَّهِ وَٱبْنِ ٱلسَّبِيلِ ۖ فَرِيضَةًۭ مِّنَ ٱللَّهِ ۗ وَٱللَّهُ عَلِيمٌ حَكِيمٌۭ ﴿٦٠﴾
Zakah expenditures are only for the poor and for the needy and for those employed to collect [zakah] 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.
People burdened by debt are one of the eight groups who receive zakat.
Sahih Muslim 1044
Sahih... إن المسألة لا تحل إلا لأحد ثلاثة رجل تحمل حمالة ...
"Asking for charity is lawful only for one of three: a man who has taken on a debt for others, ..."
Debt is one of the needs for which taking charity is allowed.
Where the ruling is recorded
- al-Hidaya, Kitab al-Zakat, chapter on those to whom zakat may and may not be paid. The gharim is one burdened with debt who does not own a nisab beyond it.
- al-Durr al-Mukhtar with Radd al-Muhtar, Kitab al-Zakat, chapter on the recipients, on transfer of ownership. Paying a poor person's debt at his request counts as zakat; without his request it does not.
Checked by our team. For a more accurate answer to your own situation, consult a scholar. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.