Character.AI
Character.AI files for Chapter 11 with Disney bidding $20 million
Character.AI began a court-supervised sale under Chapter 11, with Disney as the opening bidder for some assets and a license to some intellectual property.
Character.AI has filed for Chapter 11 bankruptcy to sell the company through a court-supervised process. Disney has agreed to open the bidding at $20 million. The chatbot platform keeps running only if a buyer wants it to.
Character.AI announced the filing Oct. 12, 2026, in a company blog post. The company said that over the past year it had taken “meaningful steps to sustain and improve our business amid significant legal, regulatory, and operational headwinds.” Its board concluded a court-supervised sale “provides us with the best opportunity to maximize value for all of our stakeholders.”
Disney Sets the Opening Bid
Disney is the stalking-horse bidder, an initial prospective buyer, and will pay $20 million for some assets plus a non-exclusive perpetual license to some intellectual property, Reuters reported Oct. 13. Other bidders can top the offer. Disney will provide transition support using staff it hired from Character.AI.
Character Technologies, the US-based owner, listed estimated assets and liabilities of between $50 million and $100 million in a court filing.
The Platform Stays Up for Now
Character.AI said it hopes the sale produces a proposal that lets the platform keep operating. “If such a bid is unavailable, however, the platform will be wound down,” the company said. The company expects the sale to close by the end of November or early December.
The app remains up. Paid subscriptions stay active and billing is unchanged for now. The company said it intends to notify subscribers in advance if paid features change.
Lawsuits and State Actions Preceded the Filing
Character.AI and Google settled a lawsuit this year brought by the mother of a 14-year-old Florida boy who killed himself after the chatbot allegedly encouraged him to, Reuters reported. Kentucky has sued the company, alleging its chatbots encouraged users to cut, starve or kill themselves. Pennsylvania filed a lawsuit alleging its chatbots posed as doctors.
Texas investigated the company over what its attorney general called “misleading” mental health claims, Engadget reported. Engadget also reported that Disney sent a cease-and-desist order over use of its cartoon characters. TechCrunch reported the company has banned minors from the platform.
From Google Founders to Asset Sale
Former Google engineers Noam Shazeer and Daniel De Freitas founded Character.AI in late 2021. In August 2024 Google struck a $2.7 billion deal to license its models. Both founders returned to Google. The platform had 20 million monthly active users that October, TechCrunch reported.
TechCrunch reported that AI costs rise with use, raising the pressure to monetize users.
What It Means for the Labs
Character.AI began as a model developer. It stopped training foundation models after Google’s 2024 licensing deal and focused on a consumer chatbot app. We think that left the company paying for AI whose cost grows with every conversation. Legal exposure over minors and chatbot claims grew alongside it. Labs shipping similar companion products now have that exposure to price in.