Character.ai filed for Chapter 11 bankruptcy late Monday in an effort to “facilitate a value-maximizing sale” of its assets, with Disney readying a $20 million bid for a “non-exclusive perpetual license” of certain IP.
This update comes a year after the entertainment giant sent the chatbot company a cease-and-desist letter over unauthorized character use in September 2025 and a month after hiring former CEO Karandeep Anand as CTO last month.
Per the new agreement, Disney Worldwide Services would “serve as stalking horse bidder” and temporarily retain Character.ai employees hired by Anand for transitional services. Still, other companies are allowed to make better offers ahead of the auction’s completion, which is expected for late November or early December.
“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” Character.ai CEO Colin Adams said in a statement. “After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders. As we navigate this process, maintaining a safe and engaging user experience for our Character.ai community remains a top priority.”
In the meantime, Character.ai will continue operating as usual with “minimal disruptions to service.”
The chatbot platform has shifted its focus to microdramas as of late following multiple settled lawsuits initially accusing the company’s AI agents of leading teens to self-harm, while Pennsylvania sued over the generation of a fake medical professional license.
