Answer
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
It is permissible to give zakah to debtors who are in financial difficulty, whether they are prisoners or otherwise.
Answering your question, the Fatwa Center at Islam Q and A, states:
It is permissible to give zakah to debtors who are in financial difficulty, whether they are prisoners or otherwise.
Allah says:
{Zakah expenditures are only for the poor and for the needy and for those employed to collect [zakah] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveler – an obligation [imposed] by Allah . And Allah is Knowing and Wise.} (At-Tawbah 9:60)
If the one who is in debt is in financial difficulty and cannot afford to pay off his debt, then he may receive zakah funds with which to pay off his debt. This applies even if he got into debt for haram purposes, so long as he has repented.
It says in Sharh Muntaha al-Iradat (1/457):
“If a person got into debt for his own sake, for something permissible, or he got into debt for something haram but has repented from it, and he is in financial difficulty and cannot afford to pay off the debt, [he may receive zakah]. Allah says: “…and for those in debt…” (At-Tawbah 9:60)”
Read also:
Can I Pay Off My Debt In a Different Currency?
Can I Deduce My Debt from My Zakah?
Is Zakah Due on Properties That Are in Debt?
Is There Zakah on the Debt Someone Owes You?
Almighty Allah knows best.
Source: www.islamqa.info/en