Character.AI filed for Chapter 11 bankruptcy to pursue a court-supervised sale of all or substantially all of its assets, according to the company's own update. Disney has agreed to bid $20 million for a non-exclusive license to certain Character.AI IP, and the Character.AI platform remains online for now while the sale determines whether anyone keeps it running.
- The bankruptcy is filed. Character Technologies Inc., doing business as Character.AI, has a voluntary petition on file as case 26-11603 in the District of Delaware before Judge Brendan Linehan Shannon, according to claims agent Stretto.
- Disney is bidding on a license. Disney Worldwide Services agreed to serve as stalking-horse bidder at $20 million for a non-exclusive, perpetual license to certain company IP and certain company claims, Variety reports.
- No sale has closed. Competing bidders can still top Disney's offer, according to Reuters.
- Service continues for now. Character.AI says the platform remains up, paid subscriptions remain active, and billing is unchanged for now.
- A wind-down is conditional. The company says it will wind down the platform only if the sale fails to produce a bid that allows continued operations.
Disney's $20 million offer covers an IP license and transition help
According to Variety's reporting, the Disney Worldwide Services bid is for a non-exclusive, perpetual license to certain Character.AI IP and certain company claims. Variety describes the deal as something other than a completed acquisition of the platform or of all the company's assets.
The agreement also includes transition services delivered through former Character.AI staff for a limited period, per Variety.
Disney is the stalking-horse bidder in the court-supervised process, and Reuters reports that competing bidders can top its offer, so the final buyer and terms remain open.
Character.AI says it hopes the process yields an actionable proposal that allows the platform to keep operating. The company's broader goal is a sale of all or substantially all of its assets, which reaches well beyond the IP and claims covered by the Disney license.
The filing cites legal, regulatory, and cost pressure, while child-harm claims remain allegations
Character.AI attributes the filing to "significant legal, regulatory, and operational headwinds." The company says its board reviewed the available alternatives and chose a court-supervised sale as the best way to maximize value for stakeholders.
The filings cite high development costs, potential litigation liabilities, and regulatory engagement, CNBC reports.
Citing court documents, Reuters reports that the company has been running operating losses of $8 million to $9 million per month.
Private lawsuits alleging harm to children, along with state investigations, remain allegations and have not produced proven findings. Reuters reports that settlements in five private cases are preliminary and have not been finalized or paid.
Disney's history with the company predates its bid. According to Reuters, Disney previously sent Character.AI a cease-and-desist letter demanding the removal of its copyrighted characters, and Character.AI said it removed them; that letter was a demand, separate from any lawsuit or court judgment.
Service continues for now, with a sale expected by early December
Character.AI says users can continue to access all services at this time. Subscriptions remain active and billing is unchanged for now, and the company says it intends to notify subscribers in advance if service changes affect paid features.
The company expects the court-supervised sale to be complete by the end of November or possibly early December 2026. If no bid allows continued operations, Character.AI says the platform will be wound down.
On data, Character.AI says user information remains protected under its Privacy Policy and its privacy and security practices are unchanged. Users can delete their accounts or export their data through the app or the Character.AI website.
Users who want a copy of their data can use the export option now, ahead of a buyer decision. Court documents, including the Chapter 11 petition, are posted through Stretto.
