Character.AI filed for Chapter 11 bankruptcy in Delaware on October 13, 2026, and agreed to sell selected assets to Disney for USD 20 million. The company aims to maximize asset value through a court-supervised sale while keeping its AI chatbot platform running with minimal disruption.
Character Technologies, Character.AI’s parent company, seeks court approval for auction rules that would establish Disney as the initial bidder. The proposed agreement covers a non-exclusive, perpetual license for certain intellectual property and selected legal claims. Other bidders can submit higher offers before the process concludes.
Disney’s offer serves as a stalking horse bid, which establishes a baseline price for competing bidders. The bankruptcy process allows other interested parties to propose better offers under US bankruptcy law. Character.AI expects the sale process to conclude in late November or early December 2026.
Colin Adams, Character.AI’s chief executive, said the board reviewed available alternatives before choosing the court supervised sale. He said the process offers the best opportunity to maximize value for all stakeholders. The company listed estimated assets and liabilities between USD 50 million and USD 100 million in its court filing.
Character.AI plans to maintain its chatbot service while the court oversees the sale. The company expects minimal service disruption as it searches for a suitable buyer. However, the platform could shut down if the process fails to secure a buyer willing to continue operations.
The bankruptcy filing marks a significant shift for the consumer AI company. Its future now depends on the auction outcome and the next owner’s willingness to maintain the service. Disney’s proposed deal covers selected assets rather than an outright acquisition of the entire business.
The proceedings also follow growing scrutiny over chatbot safety and potential harm to younger users. Character.AI has faced legal pressure over allegations involving harmful chatbot interactions. The sale could reshape the platform’s ownership, product direction and long-term availability.
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