Q. 359. Is it correct for a person who is in debt to give charity? And what legal obligations are lifted from the debtor?
A. Charity is a form of spending which is commanded by the Islamic Law, and it is a form of Ihsan towards Allah’s worshippers, if it is given where it is needed. A person will be rewarded for his charity, and every man will be in the shade of his charity on the Day of Resurrection and it is accepted whether a person is in debt or not, as long as the conditions for its acceptance are met.
These conditions are that it is given purely and sincerely for Allah, the Almighty, the All-Powerful’s sake, that it is from honest earnings, and it is given where it is needed.
If these conditions are fulfilled, then the charity is accepted, according to the legal evidences; and it is not a condition that a person be free of debt. But if the debt covers all that he has, then it is not wise, nor is it logical that he should give charity while charity is recommended, not obligatory and that he should leave the debt which is an obligation on him. He should begin first with the obligation, then give charity.
Scholars have disagreed regarding the situation if a person gives charity when he has a debt covering all of his wealth: Some of them say that it is not permissible because it harms his creditor, and it causes this obligatory debt to remain unpaid. Some of them say that it is permissible, but that it contradicts what is more worthy.
In any case, it is not fitting for a person whose debt covers all that he has, to give charity until he has settled his debt, because an obligation takes precedence over a voluntary act of worship.
As for the legal obligations that are lifted from one who is indebted until such time as he pays it, they include Hajj, because Hajj is not incumbent upon a person who is in debt until he has paid it.
As for Zakah, scholars have differed regarding whether its obligation is lifted from the debtor until such lime as he pays the debt or not.
Among the scholars are those who say that the obligation of Zakah is lifted on the amount which is equivalent to the debt, whether the wealth is evident or not.
Among them are those who say that the obligation to pay Zakah is not lifted on the amount which is equivalent to the debt; rather he must pay Zakah on the whole amount which he possesses. If there is a debt incumbent on him, the Nisab is decreased.
There are those among them who discriminate, saying that if the wealth is concealed, wealth which is not seen and is not perceptible, such as money and trading merchandise, then the obligation to pay Zakah is lifted on the amount which is equivalent to the debt, while if the wealth is in the form of perceptible things, such livestock and the produce of the earth, then the obligation to pay Zakah is not lifted.
The correct view in my opinion is that the obligation to pay it is not lifted, regardless of whether the wealth is perceptible or not, and that every person who has wealth in his hand upon which Zakah is payable must pay his Zakah, even if he is in debt.
This is because Zakah is incumbent upon wealth, according to the Words of Allah, the Most High:
“Take Sadaqah (alms) from their wealth in order to purify them and sanctify them with it, and invoke Allah for them. Verily your invocations are a source of security for them; and Allah is All- Hearer, All-Knower” [At-Tawbah 9:103]
And the words of the Prophet to Mu’ath bin Jabal, may Allah be pleased with him, when he sent him to Yemen:
“Inform them that Allah has made incumbent upon them the payment of Zakah on their wealth; it is taken from the wealthy among them and distributed among their poor.” 
The Hadith is in Sahih Al-Bukhari with this wording. By this evidence from the Book (of Allah) and the Sunnah, the two things are separate, and there is no conflict between Zakah and a debt, because a debt remains an obligation and Zakah is incumbent upon wealth. So, each of them is incumbent in a place wherein the other is not incumbent, so there is no conflict between them, and no contradiction, and thus a debt remains the responsibility of its owner and Zakah remains incumbent on wealth, and he must pay it from the wealth in all circumstances.
 Reported by Al-Bukhari in the Book of Zakah, in the Chapter: The Obligation of Zakah ( 1 395 ); and by Muslim in the Book of Faith, in the Chapter: Calling to the Shahadatan and the Laws of Islam (19).
Posted from :
Fatawa Arkanul-Islam – Islamic Verdicts on the Pillars of Islam (Volume Two) – Prayer, Zakah, Fasting, Hajj
By the Honorable Shaikh Muhammad bin Salih Al- ‘Uthaimeen
Collected and Arranged by Fahd bin Nasir bin Ibrahim As-Sulaiman – Published by Dar-us-Salam