Q: What are the criteria of eligibility to receive Zakah?
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: The criterion of eligibility to receive Zakah is that the recipient must be Muslim and not own assets that are in excess of his/her basic necessities and outstanding debts and liabilities to the value of or more than either 20 mithqaal [7.5 tolas or 87.48 grams] of gold or 200 dhirhams [52.5 tolas or 612.36 grams] of silver. This is the nisaab – quantum of eligibility to receive Zakah. In addition, the recipient must not be a Hashimi [descendent of Abbaas, Haarith, Abu Talib from Ali, Ja’far and ‘Aqeel.], the payer’s son/daughter or grandson/granddaughter etc., the payer’s father/mother, grandfather/grandmother etc., or the payer’s spouse. ‘Basic necessities’ include appropriate residence, necessary furniture etc., sufficient food and clothing, appropriate conveyance, tools of trade, outstanding living expenses etc., commensurate with the status of the recipient and his/her dependents. If the recipient owns assets such as clothing, furniture, etc., that are in excess of his/her basic necessities and outstanding debts and liabilities to the value of or more than either 20 mithqaal [7.5 tolas or 87.48 grams] of gold or 200 dhirhams [52.5 tolas or 612.36 grams] of silver, he/she is not eligible to receive Zakah.
If this person is living in the house mentioned and he/she meets the above criteria on account of the outstanding loan or other debt, then he/she is technically eligible to receive Zakah.
It would not be wrong to re-give the Zakah inadvertantly payed to an ineligible person in error to another eligible person. However, one is not required to do so.
If the family members meet the criterion of eligibility mentioned above then they are eligible to receive Zakah. However, the determination of being most worthy depends on several factors, of which one is ties of kinship. Thus, if the need of two persons is exactly the same but one of them is also a relative, then there is more reward in giving to the relative. However, if the need of the non-relative is markedly greater than that of the relative then it is more rewarding to give to the non-relative. In your situation, if despite the debt your relatives have they live quite comfortably; it would be more rewarding to give your Zakah to those that are obviously poorer, needier and homeless.