Character.AI Chapter 11: Disney's $20 Million Opening Bid

A bankruptcy filed in order to sell

Character Technologies, the company behind the Character.AI chat app, filed a voluntary Chapter 11 petition in the US Bankruptcy Court for the District of Delaware on Monday, October 12, 2026, case 26-11603 before Judge Brendan Linehan Shannon. Its post the same day said the purpose was "a court-supervised sale of the company," which its board had concluded was the best way to maximize value after a year of "significant legal, regulatory, and operational headwinds." [1][3]

Reuters reported that the company filed late on Monday and that court papers followed on Tuesday. Those papers put its losses at roughly $8 million to $9 million a month, against about 12 million active users, and said it had never been profitable. Wilson Sonsini is its counsel and Houlihan Lokey its investment banker. [2][3]

Disney's $20 million opening bid

The Walt Disney Company is the stalking-horse bidder, offering $20 million for a nonexclusive, perpetual license to Character.AI's intellectual property. Other bidders can top it under the court's sale process, and a hearing on bidding procedures was set for October 30. The company expects the sale to close by late November or early December 2026. [2][3][1]

Disney had already hired Character.AI's former chief executive, Karandeep Anand, as its chief technology officer earlier in October, and Reuters reported it was hiring several of the company's technical staff. In 2024, Google licensed Character.AI's technology and rehired its two founders. [2]

A nonexclusive license is not a purchase of the app. Disney's bid secures the right to use the technology without taking on the platform, its users or its lawsuits, so whether Character.AI keeps running depends on someone else bidding to operate it. [2][1]

What users and plaintiffs face

The company said the app remained fully available, paid subscriptions stayed active with unchanged billing, and users could still export their data or delete their accounts. If no bid emerges that allows continued operation, it said, "the platform will be wound down." [1]

Character.AI had faced a run of lawsuits over harm to young users, starting with a 2024 wrongful death suit and a 2025 ruling that its chatbots' output was not protected speech at that stage, and it barred open-ended chat for users under 18 in late 2025. Reuters reported that states including Kentucky and Pennsylvania had sued, that preliminary settlements of five private suits reached in January had not been finalized or paid, and that the company hoped the bankruptcy would produce "a global resolution of all legal claims." [2]