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Video: Zakat on personal deductible liabilities - Imam Abid Khan
What has Zakat got to do with debt?
Zakat is payable on strong debts, i.e. money that is owed to you that you are confident will be paid. This may include personal loans to friends and family. This does not include outstanding wages, dowry, inheritance or assets held in trust (other than assets held under a Bare Trust).
Zakat is a fair concept, it is not imposed to unfairly take funds from you and leave you without the means to go about your day to day life at the standard you are used to. Everything in Islam is fair masha’Allah and Zakat is no different.
Certain liabilities/allowances can be deducted from your Zakatable assets before calculating how much Zakat you owe. Some debts must be included into your Zakat calculation, others do not need to be. Debts and liabilities when calculating Zakat are very important factors that must be taken into account.
1) The good debt: where the debtor is willing to give the money back in time.
2) The bad debt: when it has become very unlikely to retrieve money from a debtor either due to a lack of evidence coupled with the denial of the debtor. There are differing views whether Zakat is binding now and upon the unlikely event of retrieving these funds: