Character Technologies Inc., the parent company of Character.AI, announced its voluntary Chapter 11 filing on Monday, October 12, 2026. The filing is intended to facilitate a sale of all or substantially all of its assets. Character.AI's CEO, Colin Adams, stated that the court-supervised sale process provides the company with the best opportunity to maximize value for all stakeholders, following a year of "significant legal, regulatory, and operational headwinds."
As part of the bankruptcy proceedings, Disney Worldwide Services, Inc. has entered into an agreement to serve as the "stalking horse" bidder. Disney's offer of $20 million is for a non-exclusive perpetual license to certain Character.AI intellectual property and claims. This bid sets a baseline, allowing other interested parties to submit higher offers during an auction process. The transaction also includes Disney providing transition services, utilizing former Character.AI employees it has recently hired, to help the platform operate safely for a limited period during the sale process.
Character.AI, which allows users to chat and roleplay with various AI bots, has faced increasing scrutiny and legal challenges. These challenges include lawsuits related to teenage users and alleged fake medical claims. In January, the company settled five lawsuits concerning teen mental health crises and suicides. The company has since implemented age verification and, in late 2025, banned open-ended chats for users under 18.
The company's estimated assets and liabilities are both in the range of $50 million to $100 million, according to its court filing. Character.AI plans to keep its platform operational with minimal disruptions throughout the sale process. However, the company has indicated that if no buyer emerges who is willing to continue operating the platform, it will be wound down. The sale process is expected to conclude by late November or early December 2026.
The relationship between Character.AI and Disney has evolved recently. In September 2026, Character.AI's then-CEO, Karandeep Anand, joined Disney as its new Senior Executive Vice President and Chief Technology Officer, with other technical team members expected to follow. A year prior, in September 2025, Disney had issued a cease-and-desist letter to Character.AI, demanding the removal of chatbots featuring Disney characters from its platform due to unauthorized use of copyrighted material.
Character.AI was founded in 2021 by former Google researchers Noam Shazeer and Daniel De Freitas. The company was once valued at $2.5 billion, securing backing from Andreessen Horowitz. In 2024, Google licensed Character.AI's technology for approximately $2.7 billion, leading to Shazeer and De Freitas rejoining Google's DeepMind division along with about 30 researchers. After this deal, Character.AI ceased developing its own frontier models. The current $20 million stalking-horse bid from Disney for a non-exclusive license represents a notable change in the company's valuation.