Character.AI files for bankruptcy as Disney offers $20 million for some of its assets

Character.AI, one of the most popular chatbot services since the arrival of ChatGPT, has filed for protection under Chapter 11 of the U.S. bankruptcy code. The news, first reported by Variety and Reuters, was picked up by many outlets on October 13, 2026. The company has launched a court-supervised sale of its assets, and Disney has positioned itself first with a $20 million offer.

A floor bid from Disney

Disney has committed to paying $20 million, notably in exchange for a perpetual, non-exclusive license to part of the company's intellectual property. In the United States, this first bidder is called a "stalking horse": its offer sets the price floor, and other buyers can outbid it. The sale must be approved by the court and is expected to close in late November or early December. According to court documents, the assets and liabilities of the parent company, Character Technologies, are each between $50 million and $100 million.

The ties with Disney are not new. In September 2025, the group sent Character.AI a cease-and-desist letter over its use of Disney characters. In September 2026, it hired the start-up's chief executive, Karandeep Anand, as chief technology officer. His successor, Colin Adams, said the court-supervised sale offered "the best opportunity to maximize value" for all parties. He also cited heavy legal, regulatory and operational difficulties.

From unicorn to bankruptcy

Noam Shazeer and Daniel De Freitas, two former Google researchers, founded the start-up in 2021. It was valued at $1 billion in 2023. In the summer of 2024, Google rehired both founders and about thirty researchers, and paid roughly $2.7 billion for a license to the technology. According to the European outlet Trending Topics, Character.AI then stopped developing its own models and turned to third-party models.

The company has also been sued several times in the United States. One of these lawsuits was filed by a Florida mother: in 2024, her 14-year-old son died by suicide after months of conversations with a chatbot. According to the Austrian daily Der Standard, a settlement was reached with her in early 2026, and its terms were not made public. In late 2025, the platform banned open-ended conversations for minors.

What this means for users

• According to the company, the service remains open during the proceedings, with no change to subscriptions or billing. Subscribers will be notified of any change to paid features.
• Users can export their data or delete their accounts.
• If no buyer continues operating it, the platform will shut down.

For businesses, the episode shows that a consumer AI service can disappear or change hands within weeks, along with the conversations it stores. It is one more reason to inventory and govern the AI tools that employees use.