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Character.AI Files for Bankruptcy and Sells Assets to Disney

Character.AI listed $50 million–$100 million in estimated liabilities in its Chapter 11 filing, while Disney offered $20 million for undisclosed assets, an IP license and transition support. Disney recently hired former CEO Karandeep Anand as CTO.

The Verge

Character.AI, one of the earliest startups to emerge from the generative AI boom, filed for Chapter 11 bankruptcy protection in October 2026 and is selling assets to Disney as part of the restructuring process.

In a press release and blog post published Monday, the company said it filed for bankruptcy to facilitate a sale of the company and its assets. Character.AI listed estimated liabilities between $50 million and $100 million in its filing. Disney would serve as the lead bidder, offering $20 million for certain undisclosed assets, a nonexclusive license to unspecified intellectual property, and transition support using former Character.AI employees it has already hired.

Disney’s involvement follows its recent hiring of Character.AI’s former CEO Karandeep Anand as its chief technology officer, part of the entertainment company’s push into AI. Anand led Character.AI for just over a year, during which the company expanded into microdramas. Disney also expects a number of Character.AI’s technical staff to join the company — an arrangement resembling an “acquihire,” a strategy in which a larger company absorbs a startup’s talent.

This is not the first time Character.AI has lost key personnel to a larger acquirer. In 2024, Google spent over $2 billion to hire away much of the company’s team, including co-founders Noam Shazeer and Daniel De Freitas.

Character.AI said the bankruptcy was driven by “significant legal, regulatory, and operational headwinds.” The company has faced mounting scrutiny and lawsuits related to the safety of its chatbots, which allow users to chat and roleplay with various AI-powered bots. Disney had previously sent the company cease and desist letters, alleging that unauthorized chatbots of its characters were damaging its brand.

Character.AI expects the sale process to conclude by late November or early December and plans to keep its services, including paid subscriptions, running in the meantime. The company warned, however, that “the platform will be wound down” if no suitable bid emerges.