Character.AI has filed for Chapter 11 bankruptcy protection in the US and proposed selling some of its assets to Disney. The company said Monday that the filing would facilitate a sale of the company and its assets.
Character.AI was one of the first breakout startups of the generative AI boom. Its online bots let users chat and roleplay. The company has kept releasing updates and products in recent months, even as its chatbots have faced growing safety scrutiny and lawsuits.
“Over the past year, we’ve taken meaningful steps to sustain and improve our business amid significant legal, regulatory, and operational headwinds,” Character.AI said in a press release and blog post. Its bankruptcy filing lists estimated liabilities of $50 million to $100 million.
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Under the proposed sale, Disney would be the lead bidder, setting a baseline for competing offers. It would pay $20 million for certain assets that have not been disclosed and receive a nonexclusive license to unspecified intellectual property. Disney would also provide transition support “using former Company employees it has hired.”
Disney recently hired former Character.AI CEO Karandeep Anand as its chief technology officer as it expands its AI work. Anand led Character.AI for just over a year and oversaw its move into microdramas. Disney said it also expects “a number of Character.AI’s technical team” to join the company.
Disney had previously accused Character.AI of damaging its brand and exploiting its intellectual property by allowing unauthorized chatbots based on Disney characters. It sent cease and desist letters over the bots.
Character.AI plans to keep its services running
Disney’s plan to hire technical staff alongside the asset bid resembles an acquihire, a strategy that has become increasingly common in Silicon Valley and can leave the original startup struggling. Character.AI has already lost a large share of its team through a similar deal: Google spent more than $2 billion in 2024 to hire much of its talent, including co-founders Noam Shazeer and Daniel De Freitas.
Character.AI plans to keep its services, including paid subscriptions, operating during the sale process. It warned that “the platform will be wound down” if no suitable bid emerges. “As we navigate this process, maintaining a safe and engaging experience for our community remains a top priority,” the company said. Character.AI expects the sale process to finish by late November or early December.
