Character.AI, one of the first breakout startups of the generative AI boom, has filed for Chapter 11 bankruptcy in the US, according to Reuters and The Verge. The company builds online bots that users chat and roleplay with, and it now plans to sell some of its assets to Disney for $20 million.
The filing, announced Monday in a press release and blog post, is meant to facilitate the sale of the company and its assets. Character.AI said it will keep operating its services, including paid subscriptions, while the process runs, and it expects the sale to close by late November or early December. The company warned that the platform will be wound down if no suitable bid emerges.
Why Character.AI filed for bankruptcy
The startup said it had faced significant legal, regulatory and operational headwinds over the past year. In its bankruptcy filing, Character listed estimated liabilities between $50 million and $100 million.
The company has drawn mounting scrutiny and lawsuits over the safety of its chatbots, but it continued releasing updates and products in recent months. This is not its first talent shock: in 2024, Google spent over $2 billion to hire away much of its talent, including co-founders Noam Shazeer and Daniel De Freitas.
Disney's role in the Character.AI sale
Disney would serve as the lead bidder, setting a baseline for competing offers, according to The Verge. Disney would pay $20 million for certain undisclosed assets and provide transition support using former Character.AI employees it has hired. It would also receive a nonexclusive license to unspecified intellectual property.
The move follows Disney hiring Character.AI's former CEO Karandeep Anand as chief technology officer, part of its growing push into AI. Anand led Character for just over a year, during which the company moved into microdramas. Disney has also said it expected a number of Character.AI's technical team to join the company.
