Praise be to Allah.
It is permissible to give zakah to the debtors themselves, and it is also permissible to give it directly to the people to whom the debts are owed. The details of each method vary according to the situation of the debtor.
Shaykh Muhammad al-‘Uthaymeen said:
Is it permissible to go to the creditor and give him his money without the knowledge of the debtor?
The answer is: yes, that is permissible, because this comes under the heading of Allah’s words (interpretation of the meaning): “and for those in debt” [Al-Tawbah 9:60]
If someone were to say: Is it better for us to give it to the debtor so that he can give it to the creditor, or should we give it to the creditor? The answer is that it depends.
If the debtor is trustworthy and is keen to pay off his debt, then it is undoubtedly better to give it to him so that he can pay it himself, so that he will not be embarrassed or shamed in front of others.
But if there is the fear that this money may be misused, then we should not give it to him, rather we should go to the creditor who has asked for it and pay it off on his behalf.
Al-Sharh al-Mumti’, 6/234, 235.
It should be noted that the debtor is the one who is indebt because he is unable to spend [due to poverty], or to reconcile between two who are disputing, and the like.
The scholars of the Standing Committee said:
If a person borrows money because of necessity – such as to build a house to live in, or to buy suitable clothes, or for those on whom he is obliged to spend, such as his parents, children or wife, or to buy a vehicle to use for his work so that he can spend from its earnings on himself or on those on whom he is obliged to spend, and he does not have the money to pay off this loan, then he is entitled to be given zakah money to help him pay off his debt.
But if he has taken out a loan in order to buy land that will be a source of riches for him, or to buy a car so that he looks well off or as a luxury, then he does not deserve to be given zakah money.
Fatawa al-Lajnah al-Daa’imah, 10/8, 9
And Allah knows best.