Question Summary:
Is Zakat calculated on debts that were written off?

Question Detail:

We have a hefty MRA assessment which we are trying to negotiate. At present it's a creditor, we are not going to pay what they are asking for (Insha'Allah) BUT we don't even know how much we will end up paying (including tipping the guys). How do you think I can calculate this with our Zakaat?
 
Also we had a debt for 3 years abroad which we had temporarily written off. Now the debtor has proposed a 3 year payment plan. The last 3 years we did not take out Zakaat on this debt anticipating that it was unrecoverable. If we accept the payment plan the money comes to us over 3 years. How do we work Zakaat on this, do we work on what we recover or what we are owed? If we work on what we are owed if the person doesn't oblige and it becomes a bad debt again what do we do?
Also are we liable to pay Zakaat for the past 3 years on this money when we had temporarily written it off and now it is recovered? Meaning are we liable to pay Zakaat for the years we did not, considering the money was at that time temporarily written off?

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Zakat should be paid on the estimated amount pending the outcome of the MRA assessment. After the assessment, adjustments can be made accordingly.
There is a difference of opinion among the fuqaha on whether Zakat for previous years is fardh on a loan which was previously deemed unrecoverable but is then recovered. This is because both views (Zakat being obligatory and not being obligatory) have been endorsed as correct by classical jurists. [i] [ii]
Some jurists of the later times have chosen the view that once such a loan is recovered then Zakat is fardh on the amount recovered for all the previous years. [iii]
At the same time, other latter day scholars have given preference to the view that Zakat is not applicable on previous years for loans on which one has lost all hopes of recovering. Rather, it  is only applicable on the current, upcoming year and only on the amount that is recovered. [iv] [v]
In conclusion, if out of precaution one were to give Zakat on the previous years it would be better but one does not have to. [vi]
Sohail ibn Arif,
Student Darul Iftaa
Chicago, USA
Checked and Approved by,
Mufti Ebrahim Desai.
ولو كان الدين على مقر مليء أو) على (معسر أو مفلس) أي محكوم بإفلاسه (أو) على (جاحد عليه بينة) وعن) [i]
  محمد لا زكاة، وهو الصحيح، ذكره ابن ملك وغيره لأن البينة قد لا تقبل (أو علم به قاض) سيجيء أن المفتى به عدم القضاء بعلم القاضي (فوصل إلى ملكه لزم زكاة ما مضى) وسنفصل الدين في زكاة المال
(قوله فوصل إلى ملكه) أقول: من ذلك ما في المحيط له ألف على معسر فاشترى منه بالألف دينارا ثم وهب منه الدينار فعليه زكاة الألف لأنه صار قابضا لها بالدينار. اهـ. ومنه ما في الولوالجية: وهب دينه من رجل ووكله بقبضه فوجبت فيه الزكاة ثم قبضه الموهوب له فالزكاة على الواهب لأن القابض وكيل عنه بالقبض له أولا.
وأقول أيضا: الوصول إلى ملكه غير قيد لأنه لو أبرأ مديونه الموسر تلزمه الزكاة لأنه استهلاك
(وسبب لزوم أدائها توجه الخطاب) يعني قوله تعالى {وآتوا الزكاة} [البقرة: ٤٣]
رد المحتار ٢/ ٢٦٦ - ٢٦٧
قلت: وقدمنا أول الزكاة اختلاف التصحيح فيه، ومال الرحمتي إلى هذا وقال بل في زماننا يقر المديون بالدين [ii]  وبملاءته ولا يقدر الدائن على تخليصه منه فهو بمنزلة العدم.
المرجع السابق ٢/ ٣٤٤
فتاوى دار العلوم ديوبند، ٦/ ٩٦ دار الإشاعت [iii]
فتاوى عثماني ٢/ ٧٦ مكتبة معارف القران كراتشي [iv]
 امداد الفتاوى، ٢/ ٦٣ مكتبة دار العلوم كراتشي [v]
 فتاوى عثماني ٢/ ٤٦ مكتبة معارف القران كراتشي  [vi]