Do I have to pay zakah on a loan that won’t be repaid to me?

Q: Do I have to pay zakāh on a loan that won’t be repaid to me? If a lender has lost all hope of recovering his loan how should he treat the outstanding amount for the purposes of zakāh?

الجواب حامدًا و مصليًا و منه الصدق و الصواب

A: If a lender has lost all hope of recovering his loan because:

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  • despite an acknowledgment of the debt by the borrower he is still unable to recover it from him;
  • the borrower denies existence of the debt and the lender is unable to substantiate his claim;
  • the borrower is legally bankrupt and so the lender no longer has any legal recourse; or
  • the judicial system is unlikely to uphold his claim;
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then he is not liable to pay zakāh on the outstanding loan.

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