Is it permissible for a debtor who has enough liquid assets to cover his living expenses for a few months, and who has illiquid assets with outstanding debts, to receive Zakat money? And is it permissible to pay off the debt of a close relative who is a defaulting debtor from Zakat money?

It is permissible to give zakat to one who does not possess enough for himself and his family for a year, and this should be done by fulfilling essential needs without extravagance or stinginess. If a person has a profession that does not suffice him, then he is given from zakat the full amount of his sufficiency. As for a frozen commercial project, if you cannot benefit from it, this does not prevent you from taking zakat, as it is considered like absent money or a deferred debt. A debt that you have enough to repay does not make you eligible for zakat. As for a debt owed to you by an insolvent person, it is permissible for your relative to pay him from his zakat what settles your debt, without any precondition.