Character.AI files for Chapter 11 bankruptcy, with Disney Worldwide as stalking horse bidder

Character Technologies, the company behind the AI-companion app Character.AI, filed a voluntary Chapter 11 bankruptcy petition on October 12, 2026, in the U.S. Bankruptcy Court for the District of Delaware. The case is being heard in Wilmington, and the purpose of the proceeding is to sell all or substantially all of its assets. The company made the filing announcement late in the evening of October 12.

Agreement with Disney

The stalking horse bidder is Disney Worldwide Services, an entity of The Walt Disney Company. For $20 million, Disney receives a non-exclusive, perpetual license to part of the company's intellectual property and part of its claims. On the same terms, Disney itself provides transition services through former Character.AI employees it has already hired: according to the company, these services are to help it operate the platform safely for a limited time and support the sale process.

The agreement is not final yet. Under U.S. bankruptcy code rules that govern court-supervised asset sales, it can be outbid by more favorable offers. The company filed a motion to approve bidding procedures intended, it says, to secure the most favorable terms for the assets and to lock in Disney as the stalking horse bidder.

What happens to the platform

While the sale is under way, the company expects to operate the platform with minimal disruption. It filed a set of standard first-day motions: if approved by the court, they will allow it to pay employee salaries and benefits, meet obligations to platform users, and settle with suppliers and partners on debts incurred after the filing date. If no buyer ensures the platform continues, it will be wound down.

Company CEO Colin Adams said that over the past year Character.AI had taken steps to support and improve the business in the face of serious legal, regulatory and operational difficulties. According to him, after a comprehensive review of alternatives, the board of directors decided that a court-supervised sale offers the best opportunity to increase value for all stakeholders, and that a safe and engaging community experience remains a priority. The company is advised by legal counsel Wilson Sonsini Goodrich & Rosati, restructuring advisor Areté Partners and investment banking advisor Houlihan Lokey Capital.

Character.AI was founded in 2021 and describes itself as an entertainment AI platform where users converse and tell stories through the Chat, Books, Series and Comics formats. Before the filing, on September 18, 2026, the company said in a blog post that its then-CEO Karandeep Anand was moving to Disney in a new role as senior executive vice president and chief technology officer, and that employees from the technical team were expected to join him; the app remained available at the time. Under the proposed procedures, completion of the sale and closing of transactions are expected in late November or early December 2026.

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Translation editor: Салтанов А.