Is it permissible for a creditor to ask a debtor to pay off his debt to a needy person as zakat, while giving the debtor the option to keep the money or give it to another needy person, and would that be considered paying zakat on his behalf?

If the debt is owed by a solvent person, the lender is obliged to pay zakat on it. However, if the debt is owed by an insolvent or a denier, zakat is not obligatory until the debt is collected, after which it is paid once.

It is permissible for the lender to instruct the debtor to give the debt to a poor person with the intention of zakat. This is considered an authorization for paying zakat, provided that the money is readily available to the debtor.

The debtor does not have the option to keep the money for himself: 1. If the lender designates a specific poor person, the debtor is not allowed to give it to anyone else. 2. If the lender permits the debtor to take the zakat for himself, this is a waiver of the debt and its calculation as zakat, which is prohibited by the majority of scholars. 3. If the lender does not designate a poor person and does not authorize the debtor, and the debtor takes it for himself without the lender's knowledge, this is impermissible. If the debtor is eligible for zakat, the majority of jurists prohibit an agent entrusted with distributing zakat from taking it for himself.