Character.ai Files for Chapter 11 Bankruptcy

Character.ai has started a voluntary Chapter 11 bankruptcy process to pursue a court supervised sale of all or substantially all of its assets, the company said on its blog. It expects the sale to be complete by the end of November or early December 2026, and says the platform will be wound down if the process does not yield a bid that allows continued operations. The service stays online for now, and paid subscriptions remain active.

Disney Worldwide Services, an affiliate of Disney, will act as the opening bidder, paying $20 million for a non-exclusive, perpetual license to certain Character.ai intellectual property and claims, Business Insider reports. Other potential buyers can still make higher bids. Disney will also provide transition services through former Character.ai employees who joined Disney last month alongside former Character.ai CEO Karandeep Anand.

In a court document, the company said it had assets and liabilities between $50 million and $100 million, TechCrunch reports. CEO Colin Adams cited "significant legal, regulatory, and operational headwinds." Founded in 2021 by former Google engineers Noam Shazeer and Daniel De Freitas, the company licensed its models to Google in a $2.7 billion deal in 2024, when both founders returned to Google, and later faced lawsuits over the effect of its chatbots on teenagers, several of which it agreed to settle.