Character.AI files for bankruptcy as Disney proposes $20 million asset deal

Character.AI announced October 12 that it had entered Chapter 11 bankruptcy to pursue a sale under court supervision. The company said its chatbot platform remains available during the process, but continued operation depends on the outcome.

The company’s agreement with Disney Worldwide Services proposes $20 million in exchange for certain legal claims and a permanent, nonexclusive license to specified intellectual property. Disney would also supply transition support through former Character.AI employees it hired. The proposed transaction permits competing offers and does not establish that Disney will keep the platform running.

Character.AI cited legal, regulatory and operational difficulties as reasons for seeking bankruptcy protection. Its board concluded that a supervised sale offered the strongest available path for stakeholders. Paid subscriptions and billing remain unchanged for now, the company said.

The company expects the sale process to finish in late November or early December 2026. It warned that the platform would close if no successful proposal provides for continued service. Character.AI said it intends to notify subscribers beforehand if changes affect paid features.