The US Department of Justice's bankruptcy watchdog has asked the court handling Character.AI's Chapter 11 case to appoint a consumer privacy ombudsman before any user data is sold, The Record reported on 30 October 2026. The filing raises the prospect that chat histories, the company's most distinctive asset, could be restricted or excluded from a sale.
What we know
The request came from the Executive Office for US Trustees. According to The Record, the filing describes Character.AI's privacy policy as ambiguous and says it may permit the sale of at least some chat histories. It also notes the policy was updated on 1 July, when the company was already looking for a buyer.
The same filing puts the service at 12 million monthly active users worldwide, spending about two hours a day on average. The watchdog wants an ombudsman to advise on what can be transferred, with particular attention to data from minors, health information and anything users would expect to stay private. Character.AI did not respond to The Record's request for comment.
Separately, PPC Land reported that Disney's $20 million stalking-horse bid covers a licence to intellectual property plus transition services and expressly excludes personally identifiable information. The app, brand and user base are to be marketed to other bidders. Offers are due on 24 November, with an auction set for 1 December and a sale hearing on 3 and 4 December.
Why it matters
For buyers, the question is what a companion platform is worth if its conversation data comes with conditions attached. Years of long, personal chats are the obvious prize for anyone hoping to keep users or train models, and that is exactly the material regulators want fenced off. The Record noted the Justice Department's position that a buyer would be bound by the existing privacy policy, with changes requiring user consent.
That turns data rights into a pricing variable. A bidder for the consumer business has to model a case in which chat logs arrive with consent requirements, deletion duties or not at all. It also sets a reference point for future companion deals: privacy terms written years before a sale can cap what an acquirer is able to buy. Related transactions are logged in our deal tracker.
What to watch
Whether the court appoints an ombudsman before the 24 November bid deadline, and whether any bidder for the app itself comes forward.
Written by the AI Companion Capital newsroom from public reporting, credited above. Image via The Record from Recorded Future News.
