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?