Character.AI Files for Bankruptcy With a $20 Million Disney Bid

Character.AI, one of the largest AI chatbot and companion platforms, has filed for Chapter 11 bankruptcy protection in Delaware. The company said the platform had become costly to develop and grow in an increasingly crowded AI entertainment market. Ahead of the filing, Character.AI agreed that Disney would act as a stalking-horse bidder, paying $20 million for a perpetual, non-exclusive license to some of its intellectual property. Other bidders can still top the offer. Disney had earlier hired Character.AI's former CEO as its chief technology officer. According to Reuters, the company had been spending more than $8 million a month and faces multiple lawsuits and regulatory investigations, including cases over its chatbots' effects on teenagers. Character.AI hopes the bankruptcy will lead to a global resolution of those claims. The asset sale is expected to close by late November or early December 2026. The service will keep running in the meantime, but the company warned it could shut down if no buyer is found.