Character.AI has filed for Chapter 11 bankruptcy about five years after its founding. The chatbot startup has agreed to a proposed $20 million sale of selected assets to Disney, according to TechCrunch and The Verge. The future of its chat platform remains unresolved.
In its announcement, Character.AI says it began the voluntary bankruptcy process to pursue a court-supervised sale. It expects that process to finish by late November or early December 2026. If a suitable proposal to keep the platform operating fails to emerge, the company says it will wind the service down.
What Disney would buy
The Verge reports that Disney would be the lead bidder, with its offer setting a baseline for competing offers. The proposed deal covers certain undisclosed assets and a nonexclusive license to intellectual property. TechCrunch describes the technology license as perpetual. Disney would also provide transition support through former Character.AI employees it has hired.
Disney recently hired former Character.AI CEO Karandeep Anand as its chief technology officer. The Verge reports that Disney also expected members of the startup’s technical team to join. This follows an earlier transfer of talent to Google, which licensed Character.AI’s models in 2024 as co-founders Noam Shazeer and Daniel De Freitas returned to Google.
The $20 million offer covers only part of Character.AI’s assets. The company’s own announcement still seeks a proposal that would allow the platform to continue operating.
Popularity followed by safety scrutiny
Founded in late 2021, Character.AI let users create characters and chat or roleplay with them. TechCrunch reports that the platform had reached 20 million monthly active users by October 2024. Its bankruptcy filing lists estimated liabilities between $50 million and $100 million, according to both outlets.
The company also faced lawsuits and scrutiny over chatbot safety. TechCrunch reports that the mother of a 14-year-old Florida boy who died by suicide sued the company, alleging that he had become obsessed with a chatbot. Texas later opened an investigation into compliance with child privacy and safety laws. The company subsequently settled some lawsuits, added safety measures and barred minors from the platform, according to TechCrunch.
Character.AI attributes its decision to legal, regulatory and operational pressures. Its announcement says users can still access its services. Paid subscriptions remain active, and billing continues unchanged for now. The company says it intends to notify subscribers in advance if service changes affect paid features.
