Character.AI Files for Bankruptcy, Sells Assets to Disney for $20 Million

Character.AI's bankruptcy and the handoff of assets to

Disney

Character.AI, one of the earliest breakout stars of the generative AI wave, has filed for Chapter 11 bankruptcy and is handing over its assets to Disney. The company built a range of online chatbots for conversation and roleplay, but for years it faced mounting criticism and lawsuits over the safety of those chatbots. Despite that, Character kept shipping updates and launching new products.

In a statement published Monday, Character said it filed for Chapter 11 to facilitate the sale of its assets. "Over the past year, we've taken meaningful steps to preserve and strengthen our business amid significant legal, regulatory, and operational challenges," the press release said. Character's bankruptcy filing lists estimated liabilities between $50 million and $100 million.

The terms of Disney's acquisition

Disney is the lead participant in the process: the entertainment giant is paying $20 million for certain assets and providing transition support to former Character employees it is hiring. Disney is also receiving a non-exclusive license to unspecified Character.AI intellectual property.

Disney's involvement comes shortly after the company hired Karandeep Anand, Character.AI's former CEO, as its chief technology officer — part of Disney's growing push into AI. Anand's tenure as Character.AI's CEO lasted just over a year, during which he steered the company toward microdramas. Disney had previously complained publicly that Character was damaging the Disney brand by allowing unauthorized chatbots of Disney characters. The company had sent Character.AI cease-and-desist letters.

Beyond Anand, Disney expects "a number of members of Character.AI's technical team" to join. The move echoes the "acquihire" strategy that has become common in Silicon Valley as a way to scoop up startup talent, sometimes leaving the original company in a precarious position.

Character.AI's history with talent raids

Character.AI has been through this before: in 2024, Google spent more than $2 billion to hire away much of the company's talent, including co-founders Noam Shazeer and Daniel De Freitas.

Character.AI expects the sale process to close by late November or early December 2026 and plans to keep its services running, including paid subscriptions, during that period. However, the company warned that "the platform will be shut down" if no suitable offer materializes. "As we move through this process, maintaining a safe and engaging experience for our community remains our top priority," Character.AI emphasized.