Character.AI files for bankruptcy, Disney bids $20 million

Character Technologies Inc., the company behind the AI companion chatbot Character.ai, filed for Chapter 11 bankruptcy on Monday, October 12, 2026, in the U.S. Bankruptcy Court for the District of Delaware. It plans to sell all or substantially all of its assets in a court-supervised auction. A Disney affiliate has agreed to put in the opening bid. That bid would not buy the app itself, and the company says the platform will be wound down unless another buyer agrees to keep it running.unite+2

Under the agreement, Disney Worldwide Services Inc. will serve as stalking horse bidder. It would pay $20 million for "a non-exclusive perpetual license of certain Company intellectual property and certain Company claims" and provide transition services using former Character.ai employees it has hired, according to the company's announcement. Disney is an affiliate of The Walt Disney Company. The bid sets a minimum price, and other buyers can top it with "higher or better offers" under section 363 of the Bankruptcy Code.finance.yahoo+2

What is at stake for the platform

Character.ai said it expects to keep operating "with minimal disruptions to service" during the sale. "To the extent the Sale Process does not result in a purchase that provides for a continuation of the Character.ai platform, the platform will be wound down," the company said. The company has asked the court to approve bidding procedures, and it expects the sale to be completed and any deals closed in late November or early December 2026.finance.yahoo

The petition puts the company's assets and its liabilities each between $50 million and $100 million. According to PPC Land's review of the filing, the 20 largest unsecured claims are led by a $4.1 million trade payable owed to Google. The list also includes Pennsylvania, Kentucky and a minor plaintiff as litigation claimants, with those claims marked contingent and disputed.ppc+2

"After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the company with the best opportunity to maximize value for all stakeholders," Chief Executive Colin Adams said. He said the company faced "significant legal, regulatory, and operational headwinds".benzinga+1

A changed relationship with Disney

The deal comes about a year after Disney sent Character.ai a cease-and-desist letter, which TheWrap reported in September 2025. The letter accused the company of exploiting Disney characters without permission. In September 2026, Disney named Karandeep Anand, Character.ai's former chief executive, as its first chief technology officer, and he brought some of the startup's technical staff with him.ppc

The company has also come under pressure over child safety. Pennsylvania sued it in May 2026 over a chatbot that claimed to be a licensed psychiatrist, and Kentucky's attorney general filed claims about the platform's safety for children. Two years earlier, in August 2024, Google had struck a $2.7 billion licensing deal with Character.ai. The Disney bid now sets the minimum value of what remains for sale.ppc