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Character.AI Files for Bankruptcy as Disney Bids $20 Million—And Users Get Grief Resources
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- DeepHorus
Character.AI, the popular app for chatting with AI companions, filed for voluntary Chapter 11 bankruptcy in Delaware on October 12. The company seeks a court-supervised sale of all or substantially all its assets. If no buyer agrees to keep the service running, Character.AI said the platform will be wound down.
Disney Worldwide Services is the stalking horse bidder, offering $20 million. The bid covers a non-exclusive, perpetual license to some Character.AI intellectual property and certain legal claims. It also includes transition services from former Character.AI employees Disney has already hired.
The offer sets a floor for a bankruptcy auction, and other bidders can still top it. Character Technologies Inc. estimated assets and liabilities between $50 million and $100 million. The sale is expected to close in late November or early December.
Character.AI was founded in 2021 by former Google engineers Noam Shazeer and Daniel De Freitas. Andreessen Horowitz led a $150 million round at a $1 billion valuation. In August 2024, Google rehired the founders and licensed the technology in a roughly $2.7 billion acqui-hire.
The startup also faces legal scrutiny. Florida mother Megan Garcia sued after her 14-year-old son, Sewell Setzer III, died by suicide following attachment to a Daenerys Targaryen chatbot. In September 2025, the FTC ordered Character.AI and six other companies to explain minor protections.
Disney had sent a cease-and-desist letter over Disney character bots, and the startup removed them. Disney then named Character.AI CEO Karandeep Anand its first CTO. Character.AI also directed users to mental health resources just two weeks after launching two new chat models and a $4.99 subscription.
