# States Challenge Character.AI's Sale Process Ahead of October 30 Hearing

_California and other states objected to the bidding rules for the bankrupt AI companion company, which has a $20 million stalking horse bid from Disney._

Source: https://highintentmedia.com/news/states-object-character-ai-sale-procedures
Author: High Intent Newsroom
Published: 2026-10-28T21:57:00+00:00
Last updated: 2026-10-27T14:13:02.063959+00:00
Category: M&A

## Summary

California and other states objected on October 23 to Character.AI's proposed bidding procedures in Chapter 11, asking the court to give rival bidders a fair shot against Disney's $20 million offer.

## Key takeaways

- California and other states objected on October 23 to Character.AI's proposed Chapter 11 bidding procedures.
- They asked that rival bidders get a fair opportunity against Disney's $20 million stalking horse bid.
- A hearing on the procedures and the Disney designation is set for October 30 in Delaware.
- Forty attorneys general earlier asked that any buyer protect users' private chats and allow deletion before a sale.

California and other states filed an objection on October 23 to the bidding procedures Character.AI has proposed for selling its business in Chapter 11, according to MLex and the docket of the U.S. Bankruptcy Court for the District of Delaware (Case No. 26-11603). The states asked the court not to use a bidding procedures order to "bless" the company's prepetition decisions and to make sure the procedures "give competing bidders a fair opportunity to bid," MLex reported.

Character Technologies, the company behind Character.AI, filed for bankruptcy this month and agreed to sell some assets to Disney for $20 million as a stalking horse bid, meaning a higher offer could still win. A hearing on the bidding procedures, the Disney stalking horse designation and the sale motion is set for October 30 at 10:00 am ET in Wilmington, according to the docket.

The objection follows an October 14 notice of interest from New York Attorney General Letitia James and 39 other attorneys general. That coalition asked that any buyer adopt effective age verification beyond self-disclosure, a comprehensive privacy program and limits on using private conversations for AI training without valid consent, and that consumers be able to access and delete their information before any sale. It said it may seek an independent consumer privacy ombudsman. "This company collected some of the most private thoughts children have ever shared," James said.

Why it matters: State enforcers are treating a companion app's chat logs as a regulated asset in a sale, not just a line on a balance sheet. Any dating or companion company that may one day sell, merge or wind down should expect its message data to get the same scrutiny, and should keep consent, retention and deletion records that will hold up in front of a judge and a room of attorneys general.

Sources: MLex, October 23, 2026 · Court docket, In re Character Technologies, Inc., Bankr. D. Del. No. 26-11603 · New York Attorney General, October 14, 2026 · TechCrunch on the Chapter 11 filing

## Sources

- [MLex, October 23, 2026](https://www.mlex.com/mlex/artificial-intelligence/articles/2542579), Mlex
- [Court docket, In re Character Technologies, Inc., Bankr. D. Del. No. 26-11603](https://elevenflo.com/cases/character-technologies-inc-20283), Elevenflo
- [New York Attorney General, October 14, 2026](https://ag.ny.gov/press-release/2026/attorney-general-james-urges-court-protect-children-and-consumers-characterai), Ag.Ny
- [TechCrunch on the Chapter 11 filing](https://techcrunch.com/2026/10/13/just-5-years-in-interactive-chatbot-platform-character-ai-files-for-bankruptcy/), Techcrunch

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