Giving Zakat to Debtors; Forgiving a Loan as Zakat

Short answer: (1) Yes — debtors (al-ghārimīn) are one of the eight Quranic categories; a person indebted for halal needs and unable to repay may receive zakat up to his debt, and it may even be paid directly to his creditor. (2) No — forgiving a loan owed to you is a noble charity but cannot count as zakat, since zakat requires actually transferring wealth (tamlīk), whereas forgiving merely releases an uncollected claim. Details: The Prophet ﷺ said asking is lawful only for three, one being the man buried under debt, who may ask until his debt is covered (Sahih Muslim 1044). Condition: debt from haram pursuits (riba, gambling) requires evident repentance first. You may give your zakat to an indebted relative — earning both the reward of charity and of kinship. Evidence: Quran 9:60; Sahih Muslim 1044 (the hadith of Qabisah); the tamlīk condition and non-counting of forgiven loans per the majority, the Permanent Committee and Shaykh al-Uthaymin. For complex individual cases, consult a qualified scholar.