Character.AI Files for Chapter 11 Bankruptcy With Disney as First Bidder

Character.AI, the chatbot platform, has filed for Chapter 11 bankruptcy. According to Forbes, the company filed a voluntary petition on Monday, October 12, in the U.S. Bankruptcy Court for the District of Delaware. The filing starts a court-supervised sale of its assets. Disney has offered $20 million to become the initial bidder for a license to some of the company's intellectual property, and that offer is the first concrete price on the table.

How the sale is supposed to work.

Disney's offer covers a non-exclusive, perpetual license to parts of Character.AI's intellectual property, TechCrunch and Forbes both report. Other companies can bid against it in an auction, which the company expects to conclude in November or December. TechCrunch says a court document puts the company's assets and liabilities between $50 million and $100 million. Disney would also receive transition help from former Character.AI staff who recently joined it.

Why the company says it is struggling.

CEO Colin Adams blamed "significant legal, regulatory, and operational headwinds" for the filing, according to TechCrunch. CBS reports that the company said it had taken meaningful steps to sustain the business. The board chose a court-supervised sale because it offered the best chance to maximise value for stakeholders. TechCrunch also points to the difficulty of making money from consumer AI, where costs rise as people use the product more.

Lawsuits in the background.

Character.AI has faced several lawsuits over teen safety. CBS reports that a Florida family's wrongful death suit was settled in early 2026, and that Google, which had a licensing deal with the company, settled several related cases. Kentucky's attorney general sued in January, alleging the chatbots preyed on children, and Pennsylvania sued in May over a chatbot that allegedly claimed to be a licensed psychiatrist. These cases weighed on the company's finances and its ability to attract buyers.

The Disney connection.

The licensing bid follows a copyright dispute. In September 2025, Disney sent Character.AI a cease-and-desist letter, alleging the chatbot impersonated characters such as Elsa, Moana and Darth Vader. Forbes reports that Character.AI removed the Disney characters after the letter. The same report says Disney hired former Character.AI CEO Karandeep Anand as its chief technology officer last month, along with several members of the technical team.

What happens to users now.

The company says the platform will keep running during the sale, and existing subscriptions remain active. It has promised advance notice before any change to paid features. TechCrunch reports that the CEO warned the platform would be wound down if no workable bid arrives. CBS notes that the privacy policy allows user data, including chat transcripts and voice recordings, to be disclosed in connection with a sale. Users can delete their accounts or export their data.

What remains unknown.

The reports do not say who else will bid, what other offers might look like, or whether a sale would include user data. It is also unclear how pending lawsuits will be handled in bankruptcy. The most recent user figure TechCrunch cites is from October 2024, when the service had 20 million monthly active users. The company has raised more than $193 million from investors, according to PitchBook as cited by TechCrunch.

Auction dates are reported without a time zone, so anyone tracking the case from abroad can line the deadlines up with their own clock using the free time zone converter at /en/time-zone-converter.