Answered by Shaykh Hamza Karamali, SunniPath Academy Teacher
May one perform zakat or sadaqa when one’s debts outweigh one’s assets?
In the Name of Allah, Most Merciful and Compassionate
Obligatory Charity (zakat)
According to the strongest (adh-har) position in the Shafii school, being in debt does not exempt one from paying zakat, even if one’s debts outweigh all of one’s assets. If one owns a zakat-payable (nisab) amount of money for a year, it is obligatory to pay zakat on it, even if one is in debt (Mughni’l-Muhtaj, 1.604; al-Minhaj al-Qawim (with al-Hawashi al-Madaniyya), 2.121).
Voluntary Charity (sadaqa)
If giving voluntary charity (sadaqa) would make it unlikely that one would be able repay one’s debt on time, it is unlawful (haram) to do so. This is because the debt is obligatory to pay back, whereas the charity is only recommended. It is not permissible to violate the obligatory rights that one owes to the debtor by giving charity that is optional (al-Hawashi al-Madaniyya, 2.168; Fath al-Allam bi Sharh Murshid al-Anam, 3.372).
And Allah knows best.
Hamza.