Character.AI files for bankruptcy protection as Disney emerges as a potential buyer

Character-based chat platform Character.AI announced in a statement on the evening of October 12, 2026 that it had filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware. The company’s goal is to sell all or substantially all of its assets; Disney Worldwide Services is participating in the process as the stalking horse bidder.

$20 million deal with Disney

Before the filing, the company signed an agreement with Disney. Under it, Disney will pay $20 million for a non-exclusive, perpetual license to certain intellectual property and receivables owned by the company. Disney will also provide transition services through former Character.AI employees it has brought on board. According to the company’s statement, these services will support the safe operation of the platform for a limited period during the sale process.

The agreement is not final. Under bankruptcy rules, if higher or better bids come in, the process may proceed based on them; the company has also asked the court to approve bidding procedures to govern the sale.

The platform continues to operate during the sale process

Character.AI plans to run the platform with minimal disruption throughout the process. The first-day motions, which are expected to be approved by the court, will enable payment of employee wages and benefits, continuation of commitments made to users, and payment of vendor and partner obligations incurred after the petition date.

The company also clearly states that if the sale process does not result in a buyer that can keep the platform running, the platform will be shut down. The proposed timeline points to completing the sale process and closing the transaction by the end of November or early December 2026.

The leadership change came before the filing

This filing is not the first sign. In a blog post published on September 18, 2026, the company announced that then-CEO Karandeep Anand had moved to Disney and would take on the newly created role of Senior Vice President and Chief Technology Officer (CTO) at Disney. Some members of Character’s technical team were also expected to join Anand. The company’s current CEO is Colin Adams.

In the announcement, Adams said that over the past year they had faced significant legal, regulatory, and operational challenges; after thoroughly evaluating alternatives, the board concluded that a court-supervised sale process would create the highest value for stakeholders.

Company profile

Founded in 2021, Character.AI describes itself as an AI entertainment platform where users connect, learn, and tell stories through formats such as chat, books, series, and comics. In the process, Wilson Sonsini Goodrich & Rosati is providing legal advice to the company, Areté Partners is providing restructuring advice, and Houlihan Lokey is providing investment banking advice; Disney’s legal counsel is Skadden, Arps, Slate, Meagher & Flom.

Source: Unite.AI