Character.AI files for bankruptcy, Disney bids $20 million

Character.AI, the startup behind a popular app for chatting with AI characters, filed for Chapter 11 bankruptcy late on October 12, 2026. Disney has offered $20 million for a license to some of its intellectual property. The company plans to sell all or most of its assets by early December, and the app stays online while it does. The case shows how lawsuits and running costs can sink a consumer AI app, even one with millions of users.

What the filing says

Character Technologies, the company behind Character.AI, filed in bankruptcy court in Wilmington, Delaware, Reuters reports. A court filing puts its assets and its liabilities each between $50 million and $100 million.

Chapter 11 lets a company keep running while a court oversees its debts and any sale. In its own announcement, Character.AI said it chose a court-supervised sale of "all or substantially all" of its assets. It expects that sale to finish by the end of November or early December 2026.

The board said the process "provides us with the best opportunity to maximize value for all of our stakeholders." Reuters reports that the company also hopes the filing will help it reach a "global resolution" of the legal claims against it.

Disney's $20 million bid

Disney is the stalking-horse bidder, Reuters reports. That means its offer sets a floor price, and other buyers can try to top it. The $20 million would buy a nonexclusive, perpetual license to some of Character.AI's intellectual property.

Nonexclusive means Character.AI could license the same assets to others. Neither Reuters nor CBS News says which assets the license covers. Disney declined to comment to Reuters.

There is a personal link between the two companies. Karandeep Anand, Character.AI's former chief executive, is now Disney's chief technology officer, Reuters reports.

Users, losses and lawsuits

Character.AI has roughly 12 million active users, according to court documents cited by Reuters. The same documents show losses of about $8 million to $9 million a month.

Chief executive Colin Adams pointed to "significant legal, regulatory and operational headwinds," CBS News reports. Much of that pressure came from lawsuits over how its chatbots treated young users:

Case	Status
Florida family's wrongful death suit over a chatbot called "Dany"	Settled by Character.AI and Google in early 2026, per CBS News
Five private lawsuits	Preliminary settlements in January, not yet final or paid, per Reuters
Kentucky attorney general Russell Coleman	Accused the company in January 2026 of having "preyed on children"
Pennsylvania	Sued in May 2026 after a chatbot allegedly claimed to be a licensed psychiatrist

CBS News describes the Florida case as the first wrongful death suit of its kind against an AI company in the US.

How it got here

Character.AI was valued at $1 billion in 2023, Trending Topics reports. In summer 2024, Google rehired its founders, Noam Shazeer and Daniel De Freitas, along with about 30 researchers. Google also paid about $2.7 billion for a license to the startup's technology, the outlet reports.

That kind of deal is often called a reverse acqui-hire. A big company hires a startup's key people and licenses its technology without buying the company itself.

What happens to users

Character.AI says the platform "remains up and running" during the sale. Paid subscriptions stay active, and billing is unchanged for now. The company says it will tell subscribers in advance if paid features change.

Users can still delete their accounts or export their data. If no buyer comes forward, the company says, the platform will be wound down.

What this means for developers

For people who build on, or compete with, consumer chatbot apps:

• Export your work now. Character.AI says users can export their data. Creators who built characters on the platform should save them before any sale closes.
• Budget for safety as a real cost. Lawsuits over teen safety helped push a company with about 12 million users into bankruptcy. Age checks, crisis handling and content limits belong in the product plan from day one.
• Read licensing deals closely. Disney's bid is for a nonexclusive license, not the whole company. In AI deals, the license terms decide who can use the technology and the characters next.
• Watch the auction. The $20 million bid is a floor. Other bidders could still change who ends up with the platform, its models and its user base.