Character.AI files for bankruptcy, with Disney bidding $20 million for some assets

The filing and the proposed sale

Character Technologies, the company that runs the Character.AI platform, filed for Chapter 11 bankruptcy protection in a federal court in Delaware, the company said on Monday, 12 October 2026. The platform lets users create chatbot characters by setting a name, voice, description and greeting, then publish them to a community or place them in specific scenarios. The filing is meant to facilitate a court-supervised sale of the company and its assets, with the aim of maximizing value from all or nearly all of them. Disney is the lead "stalking horse" bidder, offering $20 million for a non-exclusive, permanent licence to certain intellectual property and certain legal claims. Because that offer acts as a floor, rival buyers can still bid higher, and the company has asked the court to approve those bidding rules. Disney would also lend back former Character.AI staff it has hired to help keep the platform running safely for a while.

Legal and regulatory pressure before the filing

The company has faced sustained scrutiny over content available to minors. Italy's privacy regulator, the Garante, fined Character Technologies Inc 158,000 euros in July 2026, citing insufficient age checks and verification systems and gaps in the information given to users about how their personal data is processed. In January, the company settled five lawsuits over teen mental health crises and suicides, and it has faced more legal claims from families and US states since then. Engadget reported that Pennsylvania sued the company over chatbots pretending to be doctors, and that Texas investigated it over what the state attorney general called "misleading" mental health claims.

Disney's ties to the company

Disney has its own history with Character.AI. The studio sent the company a cease-and-desist letter over chatbots based on its cartoon characters, and Engadget reports that Disney also banned teens from talking to its chatbots. Disney has since hired Karandeep Anand, the former Character.AI chief executive, as its chief technology officer. Before that, Google spent $2 billion hiring much of Character's talent, including co-founders Noam Shazeer and Daniel De Freitas, according to Engadget. The Disney deal is therefore the latest step in a relationship that has moved from legal disputes to a proposed asset purchase.

What happens next

In a statement, chief executive Colin Adams described the decision to file:

Over the past year, Character.AI has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds.

Adams said the board concluded that the court-supervised sale offers the best opportunity to maximize value for all stakeholders. In its court filing, Character Technologies listed estimated assets and liabilities of between $50 million and $100 million, as Reuters reported. The company expects to complete the sale in late November or early December 2026. It intends to keep operating, including the platform, while it seeks to minimize service disruption and has asked the court to allow it to keep paying staff and suppliers. If no buyer is willing to keep the platform going, Character.AI will be shut down.