Character.ai Files for Chapter 11 Bankruptcy, With Disney Bidding $20 Million

Character.ai, the platform where people chat and role-play with AI characters, has filed for Chapter 11 bankruptcy to run a court-supervised sale of the company.

What happened

According to the company’s press release dated October 12, 2026, Character Technologies Inc. started a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware to sell all or substantially all of its assets. It plans to keep the platform running during the sale.

Disney’s bid

Before filing, Character.ai agreed to make Disney its stalking horse bidder, which means Disney’s offer sets the floor that other bids must beat.

• Disney would pay $20 million for a non-exclusive, perpetual license to certain Character.ai intellectual property and certain company claims.
• Disney will also provide transition services using former Character.ai employees it has hired, to help the company operate its platform for a limited time and support the sale.
• The deal is subject to higher or better offers under section 363 of the Bankruptcy Code.

Why it filed

“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,” said CEO Colin Adams. He said the board decided a court-supervised sale gives the company the best chance to maximize value for all stakeholders. CNBC reported that the company’s court filings describe the platform as “costly to develop and grow.”

What it means for users

In a blog post, Character.ai said the platform remains up and running, paid subscriptions remain active, and billing is unchanged for now. But if the sale doesn’t produce a buyer that keeps the platform going, it will be wound down. The company expects the sale to be complete by the end of November or early December 2026.

Background

In 2024, Google signed a non-exclusive licensing deal for Character.ai’s language model technology and rehired its co-founders, Noam Shazeer and Daniel De Freitas, CNBC noted. Court filings and case details are posted by the company’s claims agent, Stretto, at cases.stretto.com/chartech.