A Delaware bankruptcy judge on October 14, 2026 authorized Character Technologies, the company behind the Character.ai chatbot app, to pay up to $1,361,000 in prepetition wages, benefits and related costs to its remaining workforce, but the signed order leaves out one item the company had requested: a $61,000 severance payment to a single former employee terminated shortly before the bankruptcy filing. The order, Docket No. 42 in case 26-11603, also lets the company pay its trust and safety retention bonuses while blocking every other payment that falls under the Bankruptcy Code's restrictions on executive pay, and it sets a final hearing for November 17, 2026.

In Short

Character.ai went bankrupt this week, and a judge has now said it can keep paying the small group of people still working there, up to about $1.36 million for now. One payment the company asked for, $61,000 for a worker let go just before the bankruptcy, did not make it into the judge's signed list. Anyone who wants to object to the long-term version of this permission has until October 30, and the judge decides the rest on November 17. The printed total in the order is also $61,000 higher than the items listed under it, so the order is not fully consistent with itself.

What the court signed

The six-page document is titled "Interim Order (I) Authorizing Debtor to (A) Pay Prepetition Wages, Employee Benefits Obligations and Other Compensation, (B) Continue Employee Benefits Programs and Pay Related Administrative Obligations; and (II) Granting Related Relief." It is signed by Brendan L. Shannon, United States Bankruptcy Judge, and dated October 14 in Wilmington. The docket stamp shows it was filed the same day. It answers the wages motion the company filed a day earlier as Docket No. 10, which PPC Land covered when Character.ai disclosed that 66 of its 86 staff had accepted jobs with Disney.

The order was entered after the first-day hearing that the company had noticed for 1:30 p.m. Eastern on October 14. The text records that the court "heard the statements in support of the relief requested therein at a hearing before this Court," and that the legal and factual bases in the motion and at the hearing "establish just cause for the relief granted herein." The motion is granted "on an interim basis as set forth herein," which is the usual language for a first-day order: limited permission now, with a second hearing for the rest.

The authority is permissive throughout. Almost every operative paragraph says the company is "authorized, but not directed, in its discretion" to make a payment or keep a program running. Nothing in the order obliges Character.ai to pay anyone.

Dates

The final hearing on the motion is set for November 17, 2026 at 10:00 a.m. prevailing Eastern Time. Objections to the proposed final order must be filed by 4:00 p.m. Eastern on October 30, 2026, and served on four parties: proposed counsel to the company, Wilson Sonsini Goodrich & Rosati in Wilmington (Erin R. Fay, Shane M. Reil and Heather P. Lambert); the Office of the United States Trustee for the District of Delaware (Linda Casey); counsel to Disney; and counsel to any statutory committee. If nobody objects by the deadline, "the Court may enter the Final Order without further notice or hearing."

Under paragraph 14, the order takes effect immediately on entry, notwithstanding the 14-day stay that Bankruptcy Rule 6004(h) would otherwise impose. Paragraph 13 states that the requirements of Bankruptcy Rule 6003 are satisfied. That rule bars courts from granting certain relief in the first 21 days of a case unless it is needed to avoid immediate and irreparable harm, so the finding is what allows the payments to start now.

The caps, line by line

Paragraph 3 allows cash payments on prepetition employee obligations "up to $1,361,000 in the aggregate on an interim basis as set forth in the chart below." The chart in the signed order reads:

  • Wage obligations: $250,000
  • Supplemental worker obligations: $560,000
  • Withholding and deduction obligations: $92,000
  • Non-insider retention bonus program: $86,000
  • Paid time off: $114,000
  • Medical, dental and vision coverage: $72,000
  • COBRA obligations: not applicable
  • Life, disability and AD&D insurance: $2,500
  • Other benefits and reimbursable expenses: $20,000
  • Payroll processing fees: $2,000
  • Benefits manager fees: $2,500
  • Employee 401(k) plan: $99,000
  • Total: $1,361,000

Every figure matches the proposed interim order attached to the motion, with one exception. The proposed order had an extra line, "Former Employee Severance Amount (if it arises)," at $61,000. The signed order has no such line. Its listed amounts add up to $1,300,000. The total, however, still reads $1,361,000.

The gap is exactly the deleted line. The likeliest explanation is that the row was taken out of the table and the total was not recalculated, although the order itself does not say so. In practice, the aggregate figure in paragraph 3 is tied to the chart by the phrase "as set forth in the chart below," and no row in that chart authorizes the severance payment. The company's room under the individual line items is therefore $1,300,000, unless the court reads the order otherwise or corrects it.

Who the $61,000 was for

According to the wages motion, the amount was owed to one former employee who was not among those moving to Disney. That person was terminated shortly before the October 12 petition and was offered $58,000 in severance under an earlier severance program, plus $3,000 toward COBRA health premiums, on condition of signing a release. The motion said that, as far as the company knew, the release had not been signed when the motion was filed. The company asked for permission to pay the amount during the interim period if the release was executed.

The proposed order built that request into three places: the chart, an exception to the statutory priority limit in paragraph 3, and a carve-out in paragraph 4 that let the company pay the amount even though the broader severance program would wait for a final order. All three are gone from the signed version. The order does not say why. It could reflect an objection raised at the hearing, a negotiated change with the US Trustee, or the company withdrawing the item because the release was still unsigned. No transcript was among the documents reviewed, although the transcription service Reliable Companies had filed a standing request for transcripts of every hearing in the case.

The omission does not cancel the claim. The former employee can still seek payment at the final hearing, or file a claim in the case, subject to the priority rules that apply to unpaid wages.

Retention bonuses: the one exception to section 503(c)

The second change concerns section 503(c) of the Bankruptcy Code, which limits retention payments and severance to insiders and payments made outside the ordinary course of business.

The proposed interim order would have barred all 503(c) payments at the interim stage. Its paragraph 11 read that the company "shall not be authorized to pay any amounts subject to section 503(c) of the Bankruptcy Code pursuant to this Interim Order." The signed order adds a carve-out: no such payments "other than amounts for the Non-Insider Retention Bonus Program."

The retention program is, by Character.ai's own description in the motion, small and narrowly aimed. It covers about six employees on the trust and safety operations team: engineers, technologists, specialists, program managers and associate program managers. None is an officer or insider, according to the motion. Participants are paid on the last day of each month they keep working during the case, with a prorated payment if the company ends their employment mid-month without cause. The interim figure is $86,000. For the final period, the motion's narrative gave about $282,000 while its tables put the final retention number at $258,000, a discrepancy PPC Land noted when the motion was filed.

The signed order therefore treats the trust and safety bonuses differently from everything else in the 503(c) bucket. Those payments can start now. Other potentially restricted payments, including the severance program for remaining staff, wait.

The severance program waits for November

Paragraph 4 lets the company keep its employee compensation and benefits programs running "except, for the avoidance of doubt, the Severance Program, which shall be subject to a final order." That part was in the company's own draft. What changed is the added proviso: nothing in paragraph 4 authorizes payments under, or changes to, any program "to the extent such payment, implementation, adoption, or change is subject to section 503(c) of the Bankruptcy Code, absent further order of the Court, except as set forth herein."

The severance program was set up before the filing, with board approval. According to the motion, it offers every remaining employee two months of salary if terminated without cause, plus two months of COBRA premiums, at an estimated $282,000 for the final period. Two of the likely beneficiaries, the general counsel and the head of people, are described as probable insiders, with severance of $58,000 and $52,000 respectively. Severance to insiders is the category section 503(c)(2) restricts most tightly. The insider question will be argued, if anyone objects, on November 17.

A tighter limit on individual payments

The wording of the priority limit also changed. Sections 507(a)(4) and 507(a)(5) give wage and benefit claims priority only up to $17,150 per employee, the figure the motion cited. The company's draft said no payments "to any Employee or Former Employee (other than the Former Employee Severance Amount (if such amount arises))" would exceed those limits. The signed version says that "no payments are authorized by this Interim Order in excess of the limits set forth in sections 507(a)(4) and 507(a)(5)," with the only exception being accrued paid time off that state law requires to be paid out. The severance exception disappeared with the severance line.

Paragraph 8, covering the payroll processor and the benefits manager, gained a parenthetical as well. The company may pay prepetition amounts owed to them "(up to the amounts set forth above)," which ties those payments to the $2,000 and $2,500 chart lines. The motion identified those providers as Rippling and OneDigital.

What the money covers

The largest line is not wages. Supplemental worker obligations, at $560,000, are more than twice the $250,000 wage line. According to the motion, those are contractors and temporary workers supplied by about six staffing agencies, covering product engineering, safety moderation, data science, security engineering, finance, legal and administrative support. The motion also said the company's last regular payroll, on September 30, was about $995,000 for 86 employees. With 66 of them going to Disney, the payroll the order now protects belongs to about 18 people, eight of whom the company expected to keep through the sale.

The order also keeps the workers' compensation program running. Paragraph 7 lifts the automatic stay so that employees can pursue workers' compensation claims "in the appropriate judicial or administrative forum," and states that this modification "pertains solely to claims under the Workers' Compensation Program." Paragraph 6 allows the company to pay amounts found owing in any audit of that program without coming back to court. Withholdings and employer payroll taxes are to be forwarded to their recipients and tax authorities under prepetition practice.

Paragraph 12 contains the usual reservations. Nothing in the order assumes any contract under section 365, admits the validity of any claim, waives the company's right to contest a claim, or "shall be construed as a promise to pay a claim or continue any applicable program post-petition."

Why this matters for advertisers and publishers

Character.ai is not only a bankrupt AI startup. It is a programmatic publisher. According to the CEO declaration filed on October 13, ad revenue had grown to about $2.5 million a month while the company lost about $8 million a month overall, and the inventory is sold through programmatic partners. As long as the app stays up, that inventory stays live, and the wages order is one of the orders that keeps it up.

The retention carve-out matters most here. Brand safety on a chatbot platform rests on moderation, and the company's motion described its retained staff as being largely its trust and safety function. The court has now let those bonuses flow from the start of the case, while holding back severance and other restricted payments. A buyer assessing Character.ai inventory between now and the sale has some assurance that the people moderating it are being paid to stay, at least through the interim period.

The broader structure has not changed. Disney's offer, as described in the bidding procedures, is a $20 million stalking horse bid for a non-exclusive license to certain intellectual property and claims, not the app, and Disney has separately budgeted $180 million for Character.ai staff it has hired. The arrangement is close to an acqui-hire carried out through a bankruptcy court. The company's investment banker said 28 potential buyers produced one offer that could not be used, and the company has said it is likely to wind down the app if no buyer wants to run it.

Within that structure, the wages order is the mechanism that keeps a debtor-in-possession operating long enough to finish an auction. It is unremarkable as bankruptcy practice. Its details still show where the court drew lines on day two: pay the moderators, defer the severance, and leave a former employee's $61,000 out of the interim list.

What remains open

Three questions carry over to the November 17 hearing. The first is whether the $1,361,000 total will be corrected to $1,300,000 or the row restored. The second is whether the former employee's severance will be paid, which may depend on whether the release has been signed. The third is how the court treats the severance program for remaining staff, including the $110,000 for the two probable insiders, under section 503(c)(2).

Other orders from the October 14 hearing, covering cash management, critical vendors, insurance, taxes and utilities, were not among the documents reviewed for this article. Neither was the court's ruling, if any, on the company's request to hear its bidding procedures motion on shortened notice. The company's proposed sale calendar puts bids on November 20, an auction on November 23 and a sale hearing on November 24, with a Disney outside date of December 17. The final wages hearing falls three days before the bid deadline.

Timeline

Summary

Who: Character Technologies, Inc., operator of the Character.ai chatbot app, as debtor; Judge Brendan L. Shannon of the US Bankruptcy Court for the District of Delaware; about 18 remaining employees, including roughly six trust and safety staff on retention bonuses; one former employee whose $61,000 severance request was left out; Wilson Sonsini Goodrich & Rosati as proposed counsel; the US Trustee and Disney as notice parties.

What: An interim order (Docket No. 42) authorizing up to $1,361,000 in prepetition wage, benefit and related payments. The signed chart omits the $61,000 former employee severance line from the company's draft, so its items add up to $1,300,000 while the printed total stays at $1,361,000. The order allows non-insider retention bonuses of $86,000 but blocks other section 503(c) payments, and defers the severance program to a final order.

When: Signed and filed on October 14, 2026, after the first-day hearing. Objections are due October 30, 2026 at 4:00 p.m. Eastern, and the final hearing is on November 17, 2026 at 10:00 a.m. Eastern.

Where: US Bankruptcy Court for the District of Delaware, Wilmington, case 26-11603 (BLS).

Why: First-day wage orders let a company in Chapter 11 keep paying staff so it can operate while it runs a sale. For Character.ai, that keeps the app, its moderation team and its programmatic ad inventory running toward a proposed November auction, while the court holds back severance payments that the Bankruptcy Code restricts.