Character.AI has filed for Chapter 11 bankruptcy, and Disney is the lead bidder for part of what the company is selling. The company says Disney agreed before the filing to pay $20 million for a permanent, non-exclusive license to certain Character.AI intellectual property and legal claims. Character.AI’s platform keeps running during the court-supervised sale, which the company expects to finish in late November or early December. Here’s the latest.
Character.AI Bankruptcy: Disney Named Lead Bidder in Asset Sale
IN THIS ARTICLE:
- What Disney agreed to pay for and how other bidders can still step in
- What happens to the platform and its subscribers while the sale moves forward
- Why Character.AI chose a court-supervised sale
Character Technologies Inc., which operates the Character.AI chatbot platform, began a voluntary Chapter 11 bankruptcy on October 12th. The goal is a court-supervised sale of all or nearly all of the company’s assets. Disney is already part of that sale as the lead bidder for a license to certain intellectual property.
In bankruptcy sales, the stalking horse bidder is the company whose offer sets the starting point. Other companies can still submit higher or better offers, and Disney’s agreement is subject to them. Character.AI has asked the court to approve the bidding rules, which would name Disney the stalking horse for certain assets. The court still has to sign off.
Disney is also providing transition services, which use the former Character.AI employees it has hired. Character.AI says those services help the platform operate safely for a limited time and support the sale. Disney’s connection to Character.AI’s people goes back a few weeks. In September, we reported that Disney had named former Character.AI CEO Karandeep Anand its first-ever Chief Technology Officer. Disney said it expects a number of Character.AI technical team members to join the company alongside him.
As we covered when D’Amaro detailed how AI is reshaping park attractions and Imagineering, Disney says it uses AI to enhance a creative process that stays human-centered and artist-driven. Disney hasn’t said how it plans to use the Character.AI license or the former employees it hired.
What Happens to the Platform During the Sale
Character.AI says it expects the platform to keep running with minimal disruptions to service. It has also filed routine requests with the court, known as first day motions, that would let it:
- Continue paying wages and benefits to employees
- Honor commitments to platform users
- Meet obligations to vendors and partners that come up after the filing date
For users, Character.AI says the platform is up and running, paid subscriptions remain active, and billing is unchanged for now. Subscribers will get advance notice if paid features change. Users can also still delete their accounts or export their data through the app or website. Character.AI says it hopes the sale produces a buyer that keeps the platform going. If no bidder does, Character.AI will wind the platform down.
Why Character.AI Chose a Court-Supervised Sale
Character.AI says it took meaningful steps over the past year to sustain and improve its business, but it faced significant legal, regulatory, and operational challenges. In a court filing, Character Technologies listed its estimated assets and liabilities, meaning what it owns and what it owes, at between $50 million and $100 million.
CEO Colin Adams said the board looked at its options before choosing this path. The court-supervised process, he said, “provides the Company with the best opportunity to maximize value for all stakeholders.” Adams also said keeping the experience safe and engaging for the Character.AI community remains a top priority.
Story So Far
- September 2025: Disney sent Character.AI a cease and desist letter demanding it stop using Disney’s copyrighted characters without authorization, and Character.AI says it removed the characters.
- September 18: Disney named former Character.AI CEO Karandeep Anand its first-ever Chief Technology Officer.
- October 12: Character.AI began its Chapter 11 case and announced Disney as the lead bidder for a license to certain intellectual property.
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