How is the zakat paid on money that has completed its hawl (one lunar year) but on which zakat was not paid, then it was lent, and then it no longer meets the nisab (minimum threshold for zakatability)?

The borrowed money is subject to zakat upon the lender (your sister) because she is the owner of the money, whether the debtor is solvent or insolvent. She must pay zakat for every year in which the money reached the nisab and a full lunar year passed over it. If it falls below the nisab in a given year, there is no zakat on it for that year.

As for you, if you possess only the borrowed money, there is no zakat upon you. If you have other wealth exceeding your basic needs, it should be set aside to meet the debt, and zakat is due on it if it reaches the nisab for the years in which the money reached the nisab.