Character Technologies, the company behind the Character.AI chatbot platform, filed for Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware on October 12, 2026, to sell all or substantially all of its assets. Disney Worldwide Services is the stalking-horse bidder, offering $20 million for a perpetual, non-exclusive licence to certain Character.AI technology and claims. Court filings show Disney had already hired the majority of the startup's workforce, including its chief executive, before the filing.

Key Facts

Details
Filing October 12, 2026; Case No. 26-11603 (BLS) before Judge Brendan Linehan Shannon
Stalking-horse bidder Disney Worldwide Services, Inc., an affiliate of The Walt Disney Company
Price $20 million in cash. Disney paid $7.5 million up front before the filing, of which $2 million is a refundable deposit; the rest is due at closing if Disney wins
What Disney would get A perpetual, worldwide, non-exclusive licence to certain intellectual property and related technology, plus a release and covenant not to sue. Ars Technica reports the IP list leaves out user data and the website
Staff Disney hired the majority of Character.AI's workforce before the filing, and most employees who got offers accepted. Under a transition services agreement, they keep helping run the platform for up to five months at no charge for their time
Competing bids If Disney loses, the winning bidder may interview and make offers to up to 80% of those employees. Disney would get a break-up fee and expense reimbursement of $700,000
Proposed schedule Bid deadline November 20, auction November 23 and sale hearing November 24, subject to court approval. The company expects the sale to close in late November or early December
Platform Keeps running, including paid subscriptions. If no buyer agrees to continue it, the platform will be wound down
Finances No funded debt and about $57 million in unrestricted cash and investments at filing, per the CEO's declaration. The petition estimates liabilities between $50 million and $100 million, according to The Verge and TechCrunch

Background

Character.AI was founded in 2021 by former Google researchers Noam Shazeer and Daniel De Freitas. In 2024 Google paid about $2.7 billion in a deal that rehired the founders and took a non-exclusive licence to Character.AI's technology at the time.

The filings describe a business that grew revenue but could not cover its costs. Total revenue rose from about $7.4 million in fiscal 2024 to about $23.6 million in fiscal 2025, and monthly revenue reached about $5.3 million in August 2026. That month the company was still losing $8 million to $9 million a month from operations. The CEO's declaration says about 12 million people use the platform each month, while the New York Attorney General's office puts monthly users at more than 20 million.

Character.AI settled all then-pending personal injury lawsuits in January 2026, and one new suit was filed in August. Since November 2025 it has faced a multistate investigation that 46 states and territories eventually joined. The company says it has banned users under 18 from open-ended chats. Disney hired former CEO Karandeep Anand as its chief technology officer before the filing. Colin Adams is now CEO and signed the first-day declaration.

Reactions and Impact

On October 14, New York Attorney General Letitia James and 39 other attorneys general filed a notice of interest in the case. They ask the court, the company and any buyer to require age verification beyond self-reported ages, safeguards against sexual and violent content, and a way for users to see and delete their data before any sale. The states reserve the right to seek an independent consumer privacy ombudsman and to object to the sale procedures or a bankruptcy plan. A Character.AI spokesperson told WIRED the states' filing "is not an accurate portrayal of the safety of our platform."

Ars Technica, republishing a WIRED report, wrote that if the deal goes through, Disney would end up with most of Character.AI's staff and much of its technology while the remaining company keeps the lawsuits and the multistate investigation. John Newman, a University of Memphis law professor and former deputy director of the FTC's Bureau of Competition, told WIRED that corporate law safeguards "really weren't built to guard against" a deal structured this way. Disney declined to comment to WIRED.

What We Don't Know Yet

  • Whether any other bidder comes forward, and whether a buyer will keep the Character.AI platform running.
  • Exactly how many employees moved to Disney and on what terms. The filings AI Rank reviewed say only "the majority".
  • What happens to user conversations and other personal data, which are not in Disney's IP list.
  • How the court will rule on the bidding procedures and on the states' requests.

Sources