Praise be to Allah, and may Allah’s peace and blessings be upon the Messenger of Allah, his family and his companions. Wa alaikum assalam wa rahmatullahi wa barakatuh. As to what follows: In response to your question, we say: The majority of the scholars are of the opinion that a debt owed by people who are insolvent or cannot repay the debt should not be calculated as part of Zakat because Allah the Exalted said, “O you who have believed, spend from the good things which you have earned and from that which We have produced for you from the earth. And do not aim toward the defective therefrom, spending [from that] while you would not take it [yourself] except with closed eyes. And know that Allah is Free of need and Praiseworthy” [al-Baqarah 2: 267], the defective wealth (al-khabith) referred to in the verse is not the prohibited wealth, rather, it is wealth of a lower status. It is known creditors consider a debt to be lower in value than the wealth that they possess, so it is classified as al-khabith, especially if the creditors have not hope that it will be repaid. Therefore, it is not permissible to give the Zakat for this type of wealth because it will be spending defective wealth.