Contractor has not started work and currently under litigation.

[Brady Dailey]

I hired a contractor to start work on a project and was supposed to start at the beginning of September. I did the research, and everything (License, insurance, and bonding) was good (Legitimate). I gave him a 50% down payment after a signed contact and invoice on the down payment. He was originally to start on September 5th. He asked to delay work until September 15th, and I agreed. However, after this he did not contact me. I started to get worried, so I did more research through resources I did not know existed previously at the end of October. I learned that him and is company is currently under litigation for nonperformance of work and "fraud". I contacted the contractor stating I wished for refunding of down payment due to nonperformance and other information coming to light (his current court case). He the replied to that. We spoke and he explained "His side" of the story. He then apologized for the massive delay of time and no contact and said I would be absolutely right to be upset and if this went to small claims I would definitely win. He then informed me that I couldn't get my money back even if won because he doesn't have it. He said has been going through a rough time and is "robbing Peter to pay Paul". He is planning to file bankruptcy because of the buildup of debts. Basically, a series of unfortunate events that have been snowballing. He is currently and has been working a larger bid the past month and this month. He said he is not in the business of wronging people and wishes to come to a new deal to work in December so that this doesn't go into small claims. He also stated he doesn't want me to feel like I've been cheated by waiting multiple months and is willing to give large discounts on the work. I said I would think about. 

I have now recently learned that he is now be taken to small claims by a second person for nonperformance. He is now being sued by two different people.

I doubt I could get any money if I took him to small claims seeing that he already has 2 cases against him. He was kind enough to let me know he is declaring bankruptcy so if I was to file small claims as well it would just be swooped into the bankruptcy, and I would be last in line. 

I understand people going through rough times. Sometimes bad things continue to build on top of each other and it snowballs out of control. I don't want to be that next thing that makes a snowball even worse than it already is on man that seems to be down on his luck (I have down on my luck before and wished another man would give me a break). I also don't want to be left feeling like I got stolen from since he has delayed work for 2 months now costing me a lot in possible rent and progress on a full rehab.

I have 3 rough options:

1. Work with him and come to another agreement on work. (Assuming he is willing to give me a deal/discount on work).

2. Be the second person to take him and his bonding company to small claims for nonperformance. Even though he already intends to file bankruptcy. And be the 3rd person in litigation against him. 

3. Chalk this up to a lesson learned and let him walk away with good portion of my budget but save myself a lot of time dealing this.

What should I do? 

[Mike Hern]

Quote from @Brady Dailey:

I hired a contractor to start work on a project and was supposed to start at the beginning of September. I did the research, and everything (License, insurance, and bonding) was good (Legitimate). I gave him a 50% down payment after a signed contact and invoice on the down payment. He was originally to start on September 5th. He asked to delay work until September 15th, and I agreed. However, after this he did not contact me. I started to get worried, so I did more research through resources I did not know existed previously at the end of October. I learned that him and is company is currently under litigation for nonperformance of work and "fraud". I contacted the contractor stating I wished for refunding of down payment due to nonperformance and other information coming to light (his current court case). He the replied to that. We spoke and he explained "His side" of the story. He then apologized for the massive delay of time and no contact and said I would be absolutely right to be upset and if this went to small claims I would definitely win. He then informed me that I couldn't get my money back even if won because he doesn't have it. He said has been going through a rough time and is "robbing Peter to pay Paul". He is planning to file bankruptcy because of the buildup of debts. Basically, a series of unfortunate events that have been snowballing. He is currently and has been working a larger bid the past month and this month. He said he is not in the business of wronging people and wishes to come to a new deal to work in December so that this doesn't go into small claims. He also stated he doesn't want me to feel like I've been cheated by waiting multiple months and is willing to give large discounts on the work. I said I would think about. 

I have now recently learned that he is now be taken to small claims by a second person for nonperformance. He is now being sued by two different people.

I doubt I could get any money if I took him to small claims seeing that he already has 2 cases against him. He was kind enough to let me know he is declaring bankruptcy so if I was to file small claims as well it would just be swooped into the bankruptcy, and I would be last in line. 

I understand people going through rough times. Sometimes bad things continue to build on top of each other and it snowballs out of control. I don't want to be that next thing that makes a snowball even worse than it already is on man that seems to be down on his luck (I have down on my luck before and wished another man would give me a break). I also don't want to be left feeling like I got stolen from since he has delayed work for 2 months now costing me a lot in possible rent and progress on a full rehab.

I have 3 rough options:

1. Work with him and come to another agreement on work. (Assuming he is willing to give me a deal/discount on work).

2. Be the second person to take him and his bonding company to small claims for nonperformance. Even though he already intends to file bankruptcy. And be the 3rd person in litigation against him. 

3. Chalk this up to a lesson learned and let him walk away with good portion of my budget but save myself a lot of time dealing this.

What should I do? 

It all changes if he files for bankruptcy And, which chapter he files, matters as well. (Keep in mind, some people say they are going to file but never do  file for various reasons.)

So, you don't know until he actually files.

In the event he does file, he no longer controls his assets and liabilities. It goes into his "estate" and a trustee takes over. You would hire a bankruptcy attorney to file a claim against the estate (his assets). Small claims court would be moot at that point.

Once he files, he is Not Permitted to pay any (large) debt outside of court approval. If he paid you today, depending on the amount, and then he files, it may be "clawed back" into the estate. You would have to give the money to the court.

I know, it seems very convoluted, but there are rules about preferential treatment involved.

In his current lawsuit; 
There is a difference between not finishing a job for someone, which is one problem, versus continuing to take money from other people to pay for legal fees and other problems but not doing the work for them (you). It shows bad judgment and that won't go well for him with the judge. 

I can "hear" his attorney advising him to file bankruptcy to consolidate the lawsuits and deal with this mess. 

Consult a local bankruptcy attorney.

[Bruce Woodruff]

Go to court right now and get a judgement. Most people that threaten BK never do it, it is a HUGE step that follows you for years. He could be just bluffing....

At any rate, since you screwed up and gave him 50%, you have few options. The only one I'd consider is if he agreed to return to the job and work for free until you are even again, maybe you pay for materials and he provides all labor for free until he is even with you again.

Don't buy any sob stories, he chose this path and should pay for it, sorry you got screwed in the process, but that's why you NEVER should pay any more than whatever work has been performed.

[Christopher Alan Rush]

Sorry to hear this. Regarding bonding, you might read up on that, I’m not sure how that works with handymen / small residential contractors. In the commercial world, we have to apply for project-specific bid bonds prior to bid date (if required) and usually include a letter from surety that confirms we are eligible for performance and payment bonds. Then if we get the job, we submit that bonding info to the client, and there’s a small bonding fee owed to the surety for that. In that case yes, if we fail to perform, the surety will be on the hook for finding another contractor / assume the risk of completing the work. Sorry I don’t know anything about the generic “licensed bonded insured” catch phrase. Maybe there’s other ways of getting bonding that I’m unfamiliar with. But as a general contractor in commercial work, every job is not automatically bonded/guaranteed by our surety, it’s only bonded if we’ve applied for those bonds for that specific job. 

[George Red]

Sounds like a bad situation Brad... but the problems facing the contractor are exactly that... his problems. Through his behavior he's attempting to use your money to pay for his problems, it seems like you almost feel bad for piling on but I would consult an attorney and follow their recommendation. I would lean toward going the legal/court route as the person appears to be of low character and seems to be taking funds for for work they have no intention of completing. The dollar amount may make a difference too... if you paid him $1,500 that's very different than if you already paid him $25,000.

[Bruce Woodruff]

Quote from @Christopher Alan Rush:

Sorry I don’t know anything about the generic “licensed bonded insured” catch phrase. Maybe there’s other ways of getting bonding that I’m unfamiliar with. But as a general contractor in commercial work, every job is not automatically bonded/guaranteed by our surety, it’s only bonded if we’ve applied for those bonds for that specific job. 

A State Contractor's Bond is different. It is for that Contr only. It is usually only $15k and can be gone after for bad or no work.