Question: A poor person owes me. Is it permissible if I deem his debt as my zakat?
ANSWER
It is not permissible.
If a poor person owes to a rich person, who gives the bond of debt to the former and says, ‘I have intended to pay you as zakat as much as you owe me. So, accept this and take it as the equivalent for your debt so that we will have paid our debts mutually,’ and if the poor person says that he accepts it, the rich person will not have paid his zakat because zakat is not discharged by giving bonds of debt or by (mutual) consent; it is performed by handing the commodity. The rich person has to pay his zakat to the poor person and the poor has to pay his debt by returning it to the rich one after taking it. If a poor tenant cannot pay rent to a landlord and if the landlord donates rents to him without receiving them, they are not counted as zakat, but sadaqah. (Radd-ul-Mukhtar)

Question: A poor person owes a debt to me. I want to donate it as my zakat. If I give my zakat to him, he will not pay his debt with it. That is, I do not trust him to pay off his debt. How can I donate his debt to me as my zakat?
ANSWER
If you cannot count on the poor person’s returning the money, you
show a person whom you trust to the poor person and say,
"Appoint this person as your agent to take your zakat and to pay
your debt" and then give zakat to the deputy, who returns it to you, thus paying the poor person’s debt. By doing so, you have both paid zakat and the debt of the poor person has been paid. (Durr-i Yakta, Mizan-i Kubra)