Answered by Shaykh Hamza Karamali, SunniPath Academy Teacher
It is mentioned regarding the lender/creditor:
Interestingly, if the creditor is Muslim, he must also pay zakat on the money that he has loaned out for the entire period that it was in the possession of the debtor once the loan becomes due and he is able to regain possession of the money.
Does the above wording imply that:
a) The lender pays the zakat for all the previous years, as a lump sum, when he gets his money back?
b) each year, the lender pays zakat for the money he has loaned until he receives it?
In both of the above cases, the lender would pay the same amount of zakat; but in one case he would pay it as a lump sum, while in the second case he would pay it yearly.
In the Name of Allah, Most Merciful and Compassionate
wa ‘alaykum as salam wa rahmatullah
Loaning money to someone does not relieve the owner from having to pay zakat on it, so zakat *would* be due on the $5000 mentioned in the Question.
If the debtor is able and willing to repay the loan, then zakat is due immediately, even if the money is not in your possession. If the debtor is unable to repay the debt, or refuses to repay it, then zakat only becomes due when (1) you regain possession of the money or (2) when the debtor becomes able and willing to repay. When either of these two things happen, you will have to calculate the number of years the money has been out of your possession, and pay zakat accordingly.
(Mughni al-Muhtaj, 1.603)
And Allah knows best.
Response from Sidi Mostafa:
Answer: He pays the zakat (as a lump sum) once he receives his money for all the years that it was out of his possession. As Reliance of the Traveller (h1.4) says, the zakat is due “only if the owner regains possession of it,” i.e. after regaining possession of it, not before.