Probably a simple clarification but the rulebook doesn't seem to make it clear. Can a player select an exhausted character to take the damage from an undefended attack if there are readied characters/heroes available? In other words, is there any rule that says readied characters must take the damage from an undefended attack before exhausted characters can?

Thanks all, wonderful community you all have here!

No, undefended damage can be taken by any hero the defending player controls

And by "any hero", this includes exhausted heroes.