Character.AI files for bankruptcy with Disney’s $20 million asset bid

Character.AI filed for Chapter 11 bankruptcy on October 12, 2026, putting its assets up for a court-supervised sale. Disney has agreed to a $20 million opening bid for some assets, Reuters reported. The service remains available, but Character.AI says its survival depends on a workable proposal to keep it operating.

An asset bid, not a finished takeover

The proposed Disney transaction covers some of Character.AI’s assets, including a license to certain intellectual property. Character.AI is asking the court to approve auction rules that would make Disney the lead bidder. That designation, called a stalking-horse bid, would establish a baseline price while leaving other bidders free to offer more.

Disney’s agreement therefore does not establish that it will be the final buyer. Nor does its proposed asset purchase amount to a confirmed commitment to keep the Character.AI platform running: the company’s announcement makes continued operation conditional on an actionable proposal.

The company describes a broader goal for the bankruptcy case than the package attached to Disney’s bid. Its FAQ says it is pursuing a sale of all or substantially all of its assets. That distinction matters when reading the $20 million figure: Reuters describes an offer for some assets, not an agreed price for the entire business.

Character Technologies, the U.S.-based owner of the platform, listed estimated assets and estimated liabilities in the same range: $50 million to $100 million each, according to the court filing cited by Reuters. Character.AI expects the sale process to finish by the end of November or early December 2026.

We hope that the sale process will yield an actionable proposal that will allow continued operations of the Character.ai platform. If such a bid is unavailable, however, the platform will be wound down.

Character.AI, October 12 company update

Access continues; billing does too

For users, the immediate position is continuity rather than shutdown. Character.AI says all services remain accessible and that it intends to operate with minimal disruptions during the sale. Its company update also spells out what remains unchanged for subscribers and what users can do with their records.

• Paid subscriptions remain active, and billing is unchanged for now.
• If service changes affect paid features, the company says it intends to notify subscribers in advance.
• Users can export their data or delete their accounts through the app or Character.AI’s website.

The company also says its privacy and security practices remain unchanged and that user information continues to be protected under its Privacy Policy. Those assurances describe the current service during the proceeding, rather than a new set of data-handling terms for a future owner.

The earlier Google deal was a different transaction

Writing in Spyglass on October 13, M.G. Siegler contrasted Disney’s proposed bid with Google’s $2.7 billion Character.AI deal in August 2024. He described that earlier agreement as including non-exclusive licensing rights and bringing co-founder Noam Shazeer and other senior staff to Google. The two figures concern different transaction packages, rather than successive prices for an identical purchase.

Siegler also points to AI-safety lawsuits following self-harm incidents and at least two suicides he describes as linked to the service. He argues that losing founders and senior talent left Character.AI less equipped to address those problems. But he acknowledges that safety issues predated the Google deal and cautions against saying that transaction caused the incidents.

Character.AI’s own explanation is broader: it cites significant legal, regulatory and operational headwinds over the past year. The company says its board reviewed alternatives before choosing a court-supervised sale, presenting the process as its best opportunity to maximize stakeholder value and preserve service. That is the board’s assessment, not a guarantee that both goals will be achieved.