Character.AI, one of the best-known AI chatbot platforms, has filed for Chapter 11 bankruptcy in the United States, about five years after it was founded. The filing was made late on Monday 12 October in a federal court in Delaware, and Disney has stepped forward with an opening bid of $20 million for part of the business, according to reports from TechCrunch, The Next Web and Gizmodo.
The app is still running. Here is what the filing says, what Disney would get and how the company reached this point.
What the filing says
Character Technologies, the company behind Character.AI, wants a court-supervised sale of “all or substantially all” of its assets. Its estimated assets and liabilities are each between $50 million and $100 million, according to Gizmodo.
Chief executive Colin Adams said the board concluded that the sale process “provides the Company with the best opportunity to maximize value for all stakeholders.” The company expects the sale to close in late November or early December.
What Disney would get
Disney is the first bidder, a role known in US bankruptcy cases as the opening or “stalking horse” offer. It has offered $20 million for a non-exclusive, perpetual licence to some of Character.AI’s intellectual property and certain legal claims, according to The Next Web and Gizmodo. TechCrunch describes the licence as covering the company’s technology. Either way, it is not an offer to buy the whole company.
Because it is an opening bid, rivals can offer more. The company has asked the court to approve the rules for that process. TechCrunch said no other buyer or competing bid had been reported when it published.
There is a link between the two companies. Disney hired Karandeep Anand, Character.AI’s former chief executive, in September as its first chief technology officer. Former Character.AI staff who moved to Disney are expected to help with a transition. A year earlier, in September 2025, Disney had sent Character.AI a cease-and-desist letter over chatbots based on its characters. Character.AI removed them, and no lawsuit followed, according to Gizmodo. Gizmodo said Disney did not respond to its request for comment.
What happens to the app
For now, nothing changes for people who use it. The app and website keep running during the sale. The company has said it hopes the process produces an offer that lets the platform carry on. If none does, the platform will be wound down. We do not yet know which of those outcomes is more likely, and none of the reports gives user or revenue figures.
How Character.AI got here
The company was founded in late 2021 by two former Google engineers, Noam Shazeer and Daniel De Freitas. Shazeer co-authored the Transformer paper, the research behind most of today’s large language models. By September 2022 it was valued at more than $1 billion after raising $150 million.
In August 2024 Google paid $2.7 billion to license its models, and both founders returned to Google. Character.AI shifted to building a consumer app, and by October 2024 it had 20 million monthly active users, according to TechCrunch. It has raised more than $193 million in total, PitchBook data cited by TechCrunch shows.
TechCrunch’s reading of the business is that AI products get more expensive as people use them more, which makes consumer apps hard to turn into profitable businesses. That is the outlet’s analysis, not something the company has said.
The safety cases
The company has also faced legal and regulatory pressure over how teenagers used it. In October 2024 a lawsuit followed the death of a 14-year-old boy in Florida whose mother said he had become obsessed with a chatbot on the platform. In December 2024 the Texas attorney general opened an investigation into whether it complied with child privacy and safety laws.
In January this year the company settled five lawsuits over teenage mental health crises and suicides, The Next Web reports. In October 2025 it announced age checks and ended open-ended chats for users under 18, according to Gizmodo. TechCrunch’s account is that minors were banned from the platform.
What to watch
The dates to follow are the court’s decision on the bidding rules, any rival offers to Disney’s $20 million, and the planned close of the sale in late November or early December.
We have not verified the court papers themselves, and none of the reports says how many people in the UK use the app. We will update this article as the sale develops.
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