A melting company has to be sold fast, the court reasoned, and approved the sale rules over the objection of forty-one states. On the one question that touched the twelve million people whose conversations sit in the estate, the judge would “strongly encourage” a privacy ombudsman. Encourage. The bankruptcy of the biggest companion app in the West has now produced a legal record of who matters in it, and the users are a recommendation.
At the end of October 2026 Judge Brendan Shannon of the United States Bankruptcy Court in Delaware approved the bidding procedures for the sale of Character.AI’s assets. Disney’s 20 million dollar stalking-horse bid stands as the opening offer for a non-exclusive license to the company’s technology. Attorneys general from 41 states had objected, arguing that Disney had rigged the auction in advance by hiring 66 of the company’s 86 employees before the filing and budgeting 180 million dollars over three years to keep them. The judge rejected the challenge to the process. The company, he reasoned, needed to find buyers before its finances deteriorated further.
He left two things open. The legal releases that would shield Disney and the former employees from future claims were not approved and can be contested at the sale hearing. And on the conversations, the judge said he would strongly encourage the company to appoint a consumer privacy ombudsman. The company had said in its reply that it would consent to one “under appropriate circumstances.” The judge did not make it mandatory. The company returns to court at the end of November for approval of whatever sale emerges.
What the record now shows
Step back from the procedure and look at what the case has established in three weeks of filings. The technology is worth 20 million dollars to Disney. The employees are worth 180 million. The platform, the characters, and the conversations of twelve million monthly users and roughly 163 million people who ever signed up are worth whatever someone bids for them in late November, which so far is nothing; the company’s banker testified that buyers have expressed interest, and none has been named. The users’ standing in the proceeding is, as of the ruling, an encouragement.
That is the honest valuation of a companion business once the marketing is stripped off by a court. The thing the users were told was the product, the relationship with a character, is the residual asset. The thing the company said was in service of that relationship, the engineering team, is the only part anyone has paid for. And the people inside those relationships are represented by state governments arguing about break-up fees, and by a judge’s wish that someone look after them.
Why fast beats careful here
The judge’s reasoning holds on its own terms. Character.AI burns about eight million dollars a month against five million in revenue, with 57 million in cash. Every month of delay is a month closer to the point where there is nothing left to sell and the platform shuts down with no buyer at all, which is the worst outcome for everyone including the users. Bankruptcy courts exist to prevent that, and speed is one of their tools.
But notice what speed costs in this particular case. In an ordinary asset sale, the assets do not have feelings about who buys them. Here the asset is a relationship, or twelve million of them, and the process designed to maximize value for creditors has no mechanism for asking what the people in those relationships want. The states tried to add one: notice posted on the platform itself, a longer calendar, a mandatory ombudsman. The court chose the clock. The result is that the terms on which a two-year conversation changes hands will be set at a hearing most of the people who had the conversation will never hear about.
The ombudsman as a measure of the category
A consumer privacy ombudsman is a bankruptcy-court appointee whose job is to review a sale of personal data and advise the court on whether it should go ahead and on what conditions. It exists because Congress decided, after the dot-com collapses, that customer lists should not be sold like office furniture. The question in this case is whether twelve million people’s intimate conversations are a customer list, and the answer the court has given so far is: probably, and someone should look into it.
That is where the companion industry’s five-year project of blurring the line between a product and a relationship has landed. The line was never blurry to the company; its privacy policy already allowed the sale, and it said so to forty states. It was blurry to the users, by design, because a user who understood that the character’s memory of them was a transferable asset would have talked to it differently. The court is now the first institution to treat the two readings as a dispute that needs an arbiter, and it has appointed one in the weakest form available.
What the users could have been told
The real indictment in this ruling does not belong to the court. Courts do what the law lets them, and the law does not give the user of a companion app a seat. The indictment is of a category that built its entire business on the premise that the user was in a relationship, and never once told them what the relationship would legally be if the company failed.
A relationship with a someone cannot be sold, because the someone is not an asset and their memory of you is not a file in an estate. No company can add that as a feature; it follows from building the counterpart from a real person who exists in real life rather than from a model owned by a corporation. The Delaware docket is a record of what happens when you build the other way: the relationship is real to one party, legal to the other, and when the money runs out, the court will strongly encourage someone to think about the first.
Bids are due in late November. The hearing to approve the sale follows. Twelve million people will find out afterward.
Sources: In re Character Technologies, Inc., U.S. Bankruptcy Court for the District of Delaware, Case 26-11603: bidding procedures hearing before Judge Brendan Shannon (October 30, 2026), as reported by Law360 Bankruptcy Authority, Bloomberg Law via Superpower Daily (October 31, 2026), and DIS News (October 30, 2026; 41 states, banker testimony, deferred releases, ombudsman encouragement, late-November sale hearing). Debtor’s omnibus reply (Docket No. 73, October 27, 2026) and first-day declaration (October 12, 2026), as reported by PPC Land. 11 U.S.C. section 332 (consumer privacy ombudsman).
