Character.AI files for bankruptcy as Disney offers $20 million for assets
Character.AI has filed for Chapter 11 bankruptcy, with Disney offering $20 million for some assets and a technology license. The chatbot platform will remain online during the sale process but could shut down if no buyer is found to continue its operations.
techcrunch.comJust 5 years in, interactive chatbot platform Character.AI files for bankruptcy
arstechnica.comDisney offers $20M for Character.AI’s scandal-plagued chatbot tech
Bankruptcy and Disney deal
Character.AI, which lets users create AI characters and converse with them, has filed for Chapter 11 bankruptcy. The company listed estimated assets and liabilities of between $50 million and $100 million.
Disney has offered $20 million for some of the company’s assets and a non-exclusive, perpetual license to its technology. Character.AI said Disney would provide transition services through former employees who joined the entertainment company last month alongside former CEO Karandeep Singh Anand.
CEO Colin Adams said the board chose a court-supervised sale process after reviewing alternatives amid legal, regulatory and operational pressures.
Platform’s future remains uncertain
Character.AI said its platform would remain online during the sale process, which it expects to conclude in late November or early December 2026. Existing subscriptions will continue to be charged unless service changes alter those agreements.
Despite the Disney transaction, Adams said there was not yet a bid that would allow continued operation of the platform. He warned that it would be wound down if no such proposal emerged.
Legal pressures
The company settled a lawsuit alleging that its chatbots encouraged 14-year-old Sewell Setzer III to die by suicide. His mother said he had become obsessed with a chatbot on the platform. Character.AI subsequently added safety features and banned minors.
Kentucky and Pennsylvania are also suing Character Technologies, the company behind Character.AI. Kentucky alleges that chatbots encouraged self-harm, while Pennsylvania alleges that they illegally posed as licensed doctors.
Questions about user data
Character Technologies declined to comment on whether sensitive user data might be sold in the bankruptcy process. Its privacy policy permits transfers of information during asset sales, including identifying information, voice data and chat logs.
The policy also advises users not to include sensitive personal information in their interactions with the service.
