Character.AI files for bankruptcy, will sell some assets to Disney for $20M

Chatbot platform Character.AI said on Monday it has filed for bankruptcy in the U.S. and has agreed to sell some assets for US$20 million to Walt Disney.

The generative AI platform has faced mounting legal challenges over its chatbots. Earlier this year, Character.AI and Alphabet’s Google settled a lawsuit by the mother of a 14-year-old Florida boy who killed himself after the startup’s chatbot allegedly encouraged him to do so.

Kentucky has sued the company, saying its chatbots encouraged users to cut, starve or kill themselves, while Pennsylvania filed a lawsuit alleging its chatbots posed as doctors.

According to Character.AI’s proposal, Disney will be a “stalking-horse” bidder — an initial prospective buyer — for a non-exclusive perpetual license to some intellectual property. Other bidders can top Disney’s offer.

Character.AI expects to close the sale of all its assets by late November or early December. Character Technologies, its U.S.-based owner, listed estimated assets and liabilities of between $50 million and $100 million, according to a court filing.

Disney will help the platform in the transition, using staff it has hired from Character.AI. The platform’s services would continue meanwhile, but would be shut down if it can’t find a buyer, the company said.

Two former Google employees founded Character.AI in 2021. In 2024, Google licensed its technology and rehired the founders.

The Financial Times reported in May 2024 that Meta and Elon Musk’s xAI were competing to partner with Character.AI. In July 2024, Musk denied a media report that xAI was considering buying the company.

In September 2025, Disney sent Character.AI a cease-and-desist letter, demanding it stop using Disney’s copyrighted characters without permission. Character.AI said it had removed them.