Character.AI Files for Chapter 11 Bankruptcy and Names Disney as Stalking-Horse Bidder for IP License

Character Technologies, the company behind the Character.AI chatbot platform, filed for Chapter 11 bankruptcy protection in Delaware on Monday. The company said the filing will facilitate a court-supervised sale of substantially all its assets and provide a path to resolve legal claims from US states, international regulators and private lawsuits alleging harm to children. Assets and liabilities are each estimated between $50 million and $100 million.

Disney Worldwide Services will serve as the stalking-horse bidder for a non-exclusive perpetual license to certain intellectual property. Disney has agreed to pay $20 million and provide transition services using former Character.AI employees it has already hired. Other bidders can top the offer. The company expects the sale process to close in late November or early December. The platform remains online during the proceedings, including paid subscriptions.

CEO Colin Adams said the board chose the process after reviewing alternatives amid significant legal, regulatory and operational headwinds. The company has been losing more than $8 million a month. It owes its 20 largest unsecured creditors more than $10.6 million, including over $4 million to Google and roughly $2.6 million to a group of law firms. Hogan Lovells alone is listed for about $2.1 million.

Disney hired former Character.AI CEO Karandeep Anand as its first chief technology officer in September, along with several technical staff. The entertainment company had previously sent a cease-and-desist letter claiming the platform used its characters for grooming and sexual exploitation. Character.AI has faced multiple lawsuits, including claims that its chatbots encouraged self-harm and one case in which a bot allegedly presented itself as a licensed psychiatrist with a fake license number.

The bankruptcy follows earlier talent departures. In 2024 Google spent more than $2 billion to hire co-founders Noam Shazeer and Daniel De Freitas and much of the technical team. Character.AI was valued at $1 billion after a 2023 funding round led by Andreessen Horowitz. The current process offers a structured way to transfer remaining technology while addressing the claims that have constrained operations.

For users the immediate effect is continuity of service while the sale is organised. If no buyer emerges to keep the platform running, operations can be wound down under the bankruptcy plan. The non-exclusive nature of the Disney license means other parties can still acquire rights to the same intellectual property. Courts will oversee the resolution of the pending litigation as part of the global settlement the company seeks.

The filing marks one of the first major generative-AI consumer platforms to enter formal bankruptcy amid safety and regulatory pressure. Outcomes will shape how similar services handle liability exposure and whether intellectual property can be separated from ongoing operational risk. Creditors and regulators will track the bidding process and any further claims that surface during the case.