Character.AI has filed for Chapter 11 bankruptcy in the United States and agreed to sell certain assets to Walt Disney for $20 million, marking a dramatic turn for the generative AI platform once valued at around $1 billion.
The proposed deal will now move through a court-supervised sale process, with Disney positioned as the initial bidder, as per Reuters.
The company has begun proceedings to sell assets, including a licence covering certain intellectual property. It is seeking court approval for auction rules that would allow competing buyers to submit higher offers than Disney's bid, which will serve as the starting price.
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The sale process is expected to conclude by late November or early December 2026. Character Technologies, the US-based entity behind the platform, reported estimated assets and liabilities ranging between $50 million and $100 million in its court filing.
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Character.AI Chief Executive Officer Colin Adams said the board had reviewed available alternatives before deciding that a court-supervised sale offered the best opportunity to maximise value for stakeholders.
“After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the company with the best opportunity to maximize value for all stakeholders,” Adams said.
Despite the bankruptcy filing, Character.AI plans to continue operating its platform during the proceedings, aiming to minimise disruptions for users.
However, the company has warned that it could shut down if the sale fails to attract a buyer willing to continue running the service.
The proceedings put the future of the AI platform at a critical juncture. The outcome will depend on whether Disney's offer attracts competing bids and whether a buyer is prepared to maintain the platform's operations.
While the proposed $20 million transaction covers certain assets rather than necessarily the entire business, the bankruptcy filing highlights the uncertainty surrounding Character.AI's future.
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The company's estimated assets and liabilities of $50 million to $100 million provide further context for the financial proceedings, though the filing alone does not establish the reasons behind its financial position.
For users, the immediate priority is continuity of service as the sale process unfolds. A final decision on the platform's future is expected after the court-supervised process concludes later this year.
About Character AI
Character.AI is an AI-powered entertainment platform that lets users create and interact with virtual characters through personalised conversations. Launched in 2022 by former Google researchers Noam Shazeer and Daniel de Freitas, it enables users to explore roleplay, storytelling, fictional worlds, and interactive experiences.
The platform uses large language models to deliver dynamic conversations. It allows users to customise characters, develop narratives, and connect through creative digital interactions.
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