Character.AI files for bankruptcy, agrees to $20M disney asset sale

Character.AI has filed for Chapter 11 bankruptcy protection in Delaware, listing estimated assets and liabilities between $50 million and $100 million.

According to a court filing, Generative AI pioneer Character.AI said, it has begun the formal process to sell assets, including a license of certain intellectual property, through Chapter 11 and is seeking court approval for auction rules that would designate Disney as the lead, or stalking horse, bidder.

Under this process, Disney's bid would set a baseline offer while allowing competing bidders to submit higher bids, and the company expects the sale process to conclude by late November or early December 2026.

“After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the company with the best opportunity to maximize value for all stakeholders," said Colin Adams, CEO of Character.AI.

Once valued at $2.5 billion, the chatbot platform faced mounting financial headwinds, heavy legal pressures over teen safety, and escalating operational costs following its core team’s departure to Google.

As part of the court-supervised restructuring, the company has lined up The Walt Disney Company as its "stalking horse" bidder.

Disney has offered $20 million for a non-exclusive license to certain intellectual property, setting a baseline for an auction expected to conclude by early December.

Character.AI assured users that its app and website will remain operational during the sale process, though the platform faces a potential wind-down if no buyer steps forward to keep the service running.

The company said it intends to continue operating its business, including the Character.AI platform, with minimal service disruptions during the sale process.

If the process fails to produce a buyer willing to continue operating the platform, it will be wound down.