Character.AI Files for Bankruptcy, Disney Bids $20M

Character.AI, the chatbot platform that let millions of people talk to AI versions of fictional characters and celebrities, has filed for bankruptcy. Its owner, Character Technologies, filed for Chapter 11 protection on Monday, 12 October, in federal court in Delaware, The Next Web reported, and plans to sell all or most of its assets through a court-supervised process. The voluntary petition puts both its assets and its liabilities in the $50 million to $100 million range, according to TechCrunch and Reuters.

The first offer on the table comes from Disney. As the stalking-horse bidder, Disney has agreed to pay $20 million for a non-exclusive, perpetual licence to some of Character.AI’s intellectual property and certain legal claims, Reuters reported. That price sets the floor: other buyers can top it under bidding rules the company has asked the court to approve. Disney will also lend back former Character.AI staff it has hired to help keep the platform running safely during the transition. The sale is expected to close in late November or early December.

The app and website keep working in the meantime, and the company has asked the court for permission to keep paying staff and suppliers. But the filing leaves no doubt about the fallback. If the process does not produce a buyer willing to keep the service going, Character.AI will be wound down. Chief executive Colin Adams said a court-supervised sale gives the company “the best opportunity to maximize value for all stakeholders.”

From a Google deal to a court sale

The collapse comes five years after the company was founded in 2021 by Noam Shazeer, a co-author of the Transformer paper, and Daniel De Freitas, both former Google engineers. A $150 million round led by Andreessen Horowitz made it a unicorn, and in August 2024 Google paid $2.7 billion to license its models and hired both founders back. After that the company stopped training its own foundation models and concentrated on the consumer app, which reached 20 million monthly users that autumn. According to PitchBook figures cited by TechCrunch, it raised more than $193 million from investors including Andreessen Horowitz, Lightspeed, SV Angel and Greycroft.

The legal pressure built from there. A Florida mother sued in October 2024 after her 14-year-old son died by suicide, saying he had become obsessed with a chatbot on the platform; Character.AI and Google moved to settle that and other teen-harm cases, and the company settled five lawsuits in January. It went on to ban minors from the platform, while Kentucky sued over chatbots that allegedly encouraged users to harm themselves and Pennsylvania over bots that posed as doctors. Companion chatbots have been under pressure elsewhere too: in July, China’s new rules forced several domestic apps to switch off humanlike agents.

Disney on both sides

Disney’s role is the odd twist. In September 2025 it sent Character.AI a cease-and-desist letter over chatbots built on its copyrighted characters, which the startup said it removed. A year later, in September 2026, Disney hired Karandeep Anand, then Character.AI’s chief executive, as its first group-wide chief technology officer, along with other staff. The $20 million licence now makes the company that accused Character.AI of copying its characters the buyer to beat, though the deal is non-exclusive and does not, on its own, keep the app alive.