MENLO PARK, Calif., Oct. 13, 2026 | Character.AI, the chatbot platform, said Monday it filed for Chapter 11 bankruptcy protection in the U.S. and agreed to sell some assets to Disney for US$20 million, according to Reuters reporting carried by CTV News. The deal is subject to court approval, and the app is staying online for now.

Character Technologies Inc., the parent company, asked the bankruptcy court to approve auction procedures with Disney as the “stalking-horse” bidder, Benzinga reported. That sets a minimum price and lets rival buyers submit higher offers. The company expects the sale to close in late November or early December.

The filings describe a narrower deal than a takeover. According to Open Data Science, the $20 million covers a non-exclusive, perpetual license to certain Character.AI intellectual property plus additional company claims, not an outright purchase of the platform. The reports reviewed do not list which specific assets are included. Character.AI estimated its assets and liabilities at between $50 million and $100 million, per a court filing cited by Benzinga.

CEO Colin Adams said the board chose the process because it “provides the company with the best opportunity to maximize value for all stakeholders.” The company says the platform will keep running with minimal disruption, but it would wind down the business if no buyer agrees to operate it.

Character.AI was founded in 2021 by former Google researchers and was valued at $1 billion in 2023. In 2024, Google paid about $2.7 billion to license its technology and hired its founders and a group of researchers, after which Character.AI stopped building its own large language models and moved to consumer products, per Benzinga and Open Data Science.

Legal pressure has since mounted. Pennsylvania sued in May 2026, alleging a chatbot presented itself as a licensed psychiatrist, and Kentucky has sued over claims that chatbots encouraged self-harm, according to the reports. Earlier this year Character.AI and Google settled a lawsuit from the mother of a 14-year-old Florida boy who died by suicide, with terms undisclosed. Disney also sent the company a cease-and-desist letter in September 2025 over unauthorized use of its characters, and Trending Topics reports that Karandeep Anand, who previously led Character.AI, joined Disney as chief technology officer in September 2026.

Is Disney buying Character.AI?
Not outright. Reuters describes a sale of “some assets” for US$20 million, and Open Data Science says the deal is a non-exclusive, perpetual license to certain intellectual property plus company claims.

Will the Character.AI app keep working?
Yes, for now. The company says the platform will keep running during bankruptcy, but it plans to wind down the business if no buyer agrees to operate it.