Character.AI has filed for bankruptcy. Character Technologies Inc., the company behind the AI character chat app, filed for Chapter 11 on October 12, 2026, in Delaware, and is selling its assets with Disney as the opening bidder at $20 million.
The app still works for now. But Disney's bid does not include the app, the brand or users' chats. If no one else bids for them, the platform will be wound down.
Quick facts
- Filed: Oct. 12, 2026, U.S. Bankruptcy Court for the District of Delaware (case 26-11603)
- Opening bid: Disney, $20 million for a non-exclusive license to the technology and nine patents
- Hiring: Disney plans to hire about 66 employees, at roughly $60 million a year, plus a $30 million retention pool
- Bids due: Nov. 20. Auction: Nov. 23. Sale hearing: Nov. 24. Close by: Dec. 17
- Cash on hand at filing: about $57.4 million, with no funded debt
- The app: still running; paid subscriptions still active
Why did Character.AI go bankrupt?
In its court filings, the company says litigation and regulatory exposure and high costs left it unable to keep funding operations. It describes "limited liquidity and substantial monthly cash burn," and says staff leaving was threatening its ability to run the platform safely.
It had already tried to sell itself. A sale and financing effort that ran from 2025 into 2026 drew one proposal and ended in August, and a banker said the "litigation and regulatory overhang" scared off about 28 interested parties.
What is Disney buying?
Less than the headline suggests. Disney Worldwide Services Inc. is the stalking-horse bidder, the opening offer others must beat. For $20 million in cash, it gets a non-exclusive license to Character.AI's training, safety and serving technology and nine patents. It paid $5.5 million up front in September.
A rival bid has to top $21.7 million. If none arrives, the company will ask the court to approve Disney's deal without an auction.
Why is Disney hiring Character.AI staff?
The bigger money is in people. According to the filings, as reported by PPC Land and Business Insider, Disney plans to hire about 66 Character.AI employees, with roughly $60 million a year in compensation and a $30 million retention pool, about $180 million over three years. That money goes to the workers, not the bankrupt company.
Disney already hired Character.AI's CEO, Karandeep Anand, as its first chief technology officer in September. Former Character.AI staff now at Disney are running the platform's engineering, safety and maintenance during the sale.
Disney has not explained the move publicly. It comes weeks after Disney cut hundreds of jobs, many in technology, in its third round of layoffs this year.
Is Character.AI shutting down?
Not today. The app is up and running and paid subscriptions remain active, according to Straight Arrow News. The company says it will tell subscribers in advance about changes that affect paid features.
But the filings are clear about the fallback: if no qualifying buyer emerges for the platform, it will be wound down after Disney's deal closes.
What happens to my characters and chats?
They are not in Disney's deal. The app, the brand, domains, user data, user chats, training data and finished models stay in the bankruptcy estate, which means they could be sold to someone else.
The company says users' information "continues to be protected under our Privacy Policy." That policy allows user information to be shared in a "sale of company assets," and Character.AI has not said whether chats are among the assets for sale.
Attorneys general for 39 states and the District of Columbia have told the court that any buyer must meet nine conditions, including real age verification, removing bots that pose as therapists, doctors or lawyers, limits on using chats to train AI, and giving every user a chance to delete their data before a sale. "Bankruptcy cannot become a way for a company to walk away from its responsibility to protect children and consumers," said Colorado Attorney General Phil Weiser. States can also ask the court to appoint a consumer privacy ombudsman to advise on the sale.
How to download or delete your data
- Request an export of your data, following Character.AI's help center.
- Wait for the email. The company's help pages say it can take three to four weeks, and the link expires after seven days.
- Then delete your account if you want to.
"Delete your account now and download your chats first if you want to keep them," said Robbie Torney of Common Sense Media, who also warned that deleting data "may not mean that that data is gone from model training." Public characters you created may stay active after you delete your account.
The Google deal that came first
Character.AI was founded in 2021 by former Google engineers Noam Shazeer and Daniel De Freitas. In August 2024, Google struck a licensing deal reported at about $2.7 billion and rehired both founders, without buying the company.
| Deal | Year | What changed hands | Price |
|---|---|---|---|
| 2024 | License to the technology; founders rejoin Google | About $2.7 billion (reported) | |
| Disney | 2026 | Non-exclusive license to tech and nine patents (bankruptcy bid) | $20 million |
| Disney hiring | 2026 | About 66 employees join Disney | About $180 million over 3 years in pay and retention |
The lawsuits behind it
The company's troubles are tied to child safety. Families have sued, alleging Character.AI's chatbots harmed their children, and the company has settled five such lawsuits in four states. Kentucky has accused it of exploiting children's data, and Pennsylvania says one of its chatbots posed as a licensed psychiatrist. Both states are listed as creditors.
In September 2025, the Federal Trade Commission ordered seven companion-chatbot companies, including Character.AI's parent, to hand over information about how their products affect children. AI chatbots are facing scrutiny across the industry; OpenAI is also being sued over ChatGPT's medical advice.
What to watch
November 20. Whether anyone bids for the app, the brand and the user data, or whether the platform is wound down.
The chats. Whether the court appoints a privacy ombudsman, and whether any buyer accepts the states' nine conditions.
Disney's plans. What Disney intends to build with Character.AI's technology and team.
Published Sunday, October 18, 2026. Details of the filing, the Disney bid and the hiring plan come from court documents in In re Character Technologies Inc. as reported by PPC Land, NBC News, Straight Arrow News, KQED, Tech Times and Business Insider. Disney has not commented publicly on its plans.
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