Character.AI, a generative artificial intelligence platform, has filed for Chapter 11 bankruptcy protection in the United States and agreed to sell some of its assets to Walt Disney for $20 million.
The company filed for bankruptcy on Monday, October 12, 2026, as it seeks a court-supervised sale to address mounting legal, regulatory and operational challenges. The platform will continue operating during the proceedings while the company searches for a buyer.
Under the proposed agreement, Disney would acquire a non-exclusive, perpetual licence to certain intellectual property. Disney would serve as the initial bidder, meaning other interested buyers could submit higher offers during the auction process.
Character Technologies, the company behind Character.AI, reported estimated assets and liabilities ranging from $50 million to $100 million in its bankruptcy filing.
The sale is expected to conclude by late November or early December 2026, subject to the court-supervised process. If no buyer is found willing to continue operating the platform, the service could eventually shut down.
Founded in 2021, Character.AI allows users to interact with AI-generated characters and create virtual personalities. However, the company has faced lawsuits over allegations that its chatbots exposed users, including teenagers, to harmful interactions.
The bankruptcy follows a series of legal disputes that have increased pressure on the business. The proposed sale could determine the platform’s future and how its technology and intellectual property are used.
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