Character.AI files for bankruptcy; Disney opens bidding at $20 million

The latest:

One of the best-known AI companion platforms has put itself up for sale in bankruptcy court, with Disney setting the opening price at $20 million. Character.AI said its board reviewed the alternatives and concluded a court-supervised sale offered the best chance to maximize value for stakeholders. The company cited legal, regulatory and operational headwinds over the past year.

Details:

• The filing: According to Forbes, the voluntary Chapter 11 petition was filed Monday in the U.S. Bankruptcy Court for the District of Delaware, structured to enable a sale of the company’s assets. Character.AI said court documents are being posted through claims agent Stretto, Inc. The company did not disclose its headcount.
• Disney’s bid: Forbes reported Disney is the stalking-horse bidder with a $20 million offer for a non-exclusive perpetual license to certain Character.AI intellectual property. Rival companies may bid against that offer at auction. Character.AI’s own statement did not name Disney anywhere.
• The CEO: Chief Executive Colin Adams said the board concluded after reviewing alternatives that a “court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders.” The company framed the filing as a value-maximizing step rather than a shutdown.
• The timeline: Character.AI expects the sale process to conclude by late November or early December 2026, and said it hopes the process produces an offer that keeps the platform running. Absent a viable bid, the service will be wound down. No wind-down date has been set.
• Service continuity: The platform remains live and all services are currently available, the company said, with paid subscriptions active and billing unchanged. Subscribers will be notified in advance of any change affecting paid features. Forbes reported the platform is expected to keep operating with minimal disruptions.
• User data: Character.AI said privacy protections, data practices and its privacy policy are unchanged by the filing, and users can still delete their accounts or export their data. The statement gave no indication of how user data would be handled in a sale or a wind-down.
• The lawsuits: Forbes reported that families of children who died or attempted suicide after using the chatbot sued in 2025. The company initially argued the bot’s responses were protected by the First Amendment, then agreed in January 2026 to settle a number of those cases.
• Regulatory pressure: Pennsylvania sued in May 2026, alleging the chatbot falsely presented itself as a licensed medical professional and gave a user a fabricated state license number, according to Forbes. In October 2025 the company barred users under 18 from open-ended chats.
• The Disney dispute: Disney sent a cease-and-desist in September 2025 over unauthorized use of protected characters including Elsa, Moana, Peter Parker and Darth Vader, Forbes reported, and Character.AI removed them. In September 2026 Disney hired former Character.AI chief executive Karandeep Anand as its technology chief, with several of his technical staff.

Between the lines:

The sequence Forbes lays out moves in one direction: a cease-and-desist, then the hiring of the company’s chief executive and part of his technical team, then an opening bid for a license to its intellectual property. The $20 million stalking-horse figure sets a visible floor for what a heavily litigated consumer AI platform is worth once wrongful-death settlements and a state enforcement action are priced in.

What’s next

Watch whether rival bidders emerge to top Disney’s $20 million at auction, and whether any offer preserves the platform rather than licensing its assets. Character.AI expects the process to close by late November or early December 2026.