The correct scholarly opinion, as held by Shaykh Ibn Baz, is that having a debt does not exempt a person from paying Zakat on the wealth they possess, provided that wealth reaches the nisab (minimum threshold) and a full lunar year (hawl) has passed over it.

The Shaykh bases this on the general nature of the texts from the Qur'an and Sunnah that command the payment of Zakat. These texts do not make an exception for a person who is in debt. The obligation of Zakat is attached to the wealth itself ('ayn al-mal), which is present and in the owner's possession. The debt, on the other hand, is an obligation upon the person's liability (dhimmah).

When the Prophet Muhammad (peace and blessings be upon him) sent his companions, such as Mu'adh ibn Jabal, to collect Zakat, he instructed them to take it from the rich and give it to the poor. There is no record of him instructing them to first ask the owners of wealth whether they had any debts to deduct.

Therefore, if a person has, for example, 10,000 dollars, and this amount has remained above the nisab for a full year, they must pay 2.5% of it in Zakat. This is the case even if they owe 5,000 dollars to someone else. The Zakat is due on the full 10,000 dollars that is in their hand. The debt should be paid from the remaining wealth when it is due. This ruling applies to zakatable assets like cash, gold, silver, and trade goods.