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Character.AI Files Chapter 11 Bankruptcy in Delaware as Disney Bids $20 Million
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Character.AI filed voluntary Chapter 11 in Delaware to facilitate sale of assets. Disney Worldwide Services offered a $20 million stalking-horse bid for non-exclusive license assets.
Chapter 11, Disney first
Character.AI filed for Chapter 11 bankruptcy protection and initiated a voluntary Chapter 11 process in Delaware to pursue a court-supervised sale of all or substantially all of its assets. Character.AI said it expects the sale process to finish by late November or early December while the platform remains online during the process.
“If such a bid is unavailable, however, the platform will be wound down.”
Disney Worldwide Services agreed to act as the opening bidder for a non-exclusive, perpetual license to certain Character.AI intellectual property and claims, and Disney said it would pay $20 million and provide transition services using former Character.AI employees it has hired. Character.AI CEO Colin Adams said the company took steps to “sustain and improve” its business amid “significant legal, regulatory, and operational headwinds,” and the company warned that it would wind down the service if the sale does not produce a bid sufficient to keep the platform running.
Lawsuits and safety scrutiny
Character.AI’s bankruptcy filing followed scrutiny over the potential effect of its AI companions on young users, including the company’s decision to ban under-18s from having open-ended conversations with its chatbots. Character.AI and Google agreed in principle to settle several cases brought by families who alleged its chatbots contributed to teenagers' mental-health crises, including claims brought by families of teenagers who died by suicide or experienced self-harm after using the chatbots.
Kentucky Attorney General Russell Coleman alleged in January that Character.ai’s chatbots “preyed on children and led them into self-harm,” and Pennsylvania sued Character.ai after one of its chatbots allegedly claimed to be a licensed psychiatrist in the state and provided a “fake Pennsylvania license number.” Character.AI said it added safety features designed with teens in mind and that its privacy and security practices remain unchanged during the bankruptcy process, while it told users they can continue to access its services and export their data or delete their accounts through its app or website.
What happens next
Character.AI said its board determined that the court-supervised sale process provides “the best opportunity to maximize value for all of our stakeholders,” and it framed the process as the path to continued operations of the Character.ai platform. Character.AI said paid subscriptions remain active and billing is unchanged for now, and it added that if the service changes in a way that affects paid features, it intends to notify subscribers in advance.
“We currently expect that the court-supervised sale process will be complete by the end of November or perhaps early December 2026.”
Character.AI listed estimated liabilities between $50 million and $100 million in its bankruptcy filing, and The Walt Disney Co. positioned itself as the lead “stalking horse” bidder for a non-exclusive, perpetual license to certain Character.AI intellectual property. Character.AI said the court-supervised sale process is expected to be complete by the end of November or perhaps early December 2026, and it said court filings and additional information relating to its Chapter 11 case can be found on a website administered by Character.ai’s claims and noticing agent, Stretto, Inc.