Truth

One of the hardest things for a writer to do is to tell the truth. Not that every writer is a liar but that his internal editor is always on the lookout and keeps telling him "Don't do that, people are going to be angry with you" or "Don't write that, you are revealing too much abut yourself and people won't respect you." Often, the editor is right but if we listen to it, we would never write anything interesting. After all, almost everything interesting involves people. Any story you want to tell and which people will want to read is about people or involves people who are recognizable.

Werewolves

One way to still write about people and still fall within the bounds of decency or legality is to convert the story into a fantasy. People who read about werewolves know at once that they are reading a fantasy because werewolves don't exist (we hope). If the werewolf then goes about doing the things done by the human being you have in mind then you are covered. No man would risk making a laughing stock of himself by accusing you of converting him into a werewolf.

Aliens

Another way is to move the real events to a distant future or to a different planet. You would still have the benefit of describing a real story, which is always more interesting than any you can invent, with real characters and their actions. You would be writing science-fiction, with beings and characteristics totally alien and unrecognizable. You can go deep into character or motivation, always with the real character in mind, and paint his defects or good points in brighter colors to make him more interesting.

Sausages

A famous English novelist of the eighteenth century, Mrs. Trollope, had the habit of using the characters of the people she met while on holiday, in her stories. When someone asked her about her habit, she replied that she always pulped her characters in her novels. "Of course," she said, "I draw from life, but I always pulp my acquaintances before serving them up. You would never recognize a pig in a sausage."

One problem that could emerge when you base your fictional character on a real one is that the descriptions sound like a caricature of a real person. This could happen when you use the real person's character, drawing or painting him as he is in real life, warts and all. If you find that you can't make the character sound real without using recognizable features you should invent a few, making sure they don't clash with his other characteristics.