Character.AI Files for Chapter 11 as Disney Bids for Partial Assets

Character.AI filed for Chapter 11 bankruptcy protection on Oct. 12, while Disney submitted a $20 million initial bid for selected intellectual property rights rather than the entire platform.

The bid covers a permanent, nonexclusive license and other assets. Disney has not committed to keeping Character.AI’s service running, leaving the platform’s future dependent on the bankruptcy sale.

Character.AI was founded by Noam Shazeer and Daniel De Freitas, who later returned to Google after Google paid $2.7 billion for a nonexclusive license to the startup’s large-language-model technology in 2024. About 20% of the company’s employees also moved to Google, and the remaining funds were expected to support operations for about 18 months.

Karandeep Anand, Character.AI’s former CEO, joined Disney as chief technology officer on Oct. 2. Some technical employees also moved to Disney, which is now helping maintain the service during the sale process.

Parents have alleged that Character.AI’s chatbot harmed minors, while Disney sent legal demands over the use of unauthorized entertainment characters. Character.AI began removing open-ended chat features for minors in November 2025.

The company expects the sale to finish between late November and early December. If no buyer agrees to continue operating the service, Character.AI will shut down.