Character.AI files for bankruptcy, with Disney bidding for its licences

Character.AI filed for Chapter 11 bankruptcy in the US Bankruptcy Court for the District of Delaware, seeking a court-supervised sale of all or substantially all of its assets. The company said it had initiated the process after “significant legal, regulatory, and operational headwinds” over the past year, without specifying which. Chief executive Colin Adams said the board concluded the sale process offered “the best opportunity to maximize value for all stakeholders.”

Before filing, Character.AI reached an agreement with Disney under which a Disney subsidiary will act as the stalking-horse bidder — the baseline offer against which rival bids are measured — for a non-exclusive, perpetual licence to some of the company’s intellectual property and certain claims, in exchange for $20 million and transition support using former Character.AI staff Disney has hired. The agreement is subject to higher or better offers under the bankruptcy code, and the company expects the sale to close in late November or early December 2026. The platform continues operating during the process, with subscriptions and billing unchanged; if no buyer emerges to continue the service, Character.AI said it would be wound down.

Neither company’s statement named the “legal, regulatory, and operational headwinds” behind the filing, but Character.AI had spent the previous two years defending a series of lawsuits alleging its chatbots contributed to teenagers’ deaths and mental-health harm. The company settled the first wave of those suits, alongside Google, in January 2026, without admitting liability, and had already restricted open-ended chat for users under 18 and added parental controls. More such suits remained pending at the time of the filing.

Disney’s interest marks one of the largest entertainment companies’ most direct dealings yet with a chatbot platform built around user-created characters, many drawn from film, television and game properties — material Character.AI’s own licensing arrangements had not always covered. The bankruptcy leaves Character.AI’s roughly four-year run as an independent company ending either in acquisition or shutdown, five years after its 2021 founding by former Google engineers Noam Shazeer and Daniel De Freitas, both of whom had already returned to Google in a prior licensing deal.