Character.AI has filed for Chapter 11 bankruptcy in the United States and agreed to a proposed $20 million asset deal with Walt Disney as the AI chatbot startup faces mounting legal challenges.
Under the court-supervised process, Disney will act as the initial, or “stalking-horse,” bidder for a non-exclusive, perpetual license to selected Character.AI intellectual property. Other bidders can submit higher offers, so the agreement may not be the final outcome. The sale is expected to conclude by late November or early December 2026.
Character Technologies, the company behind Character.AI, reported estimated assets and liabilities of between $50 million and $100 million, according to court filings.
The bankruptcy follows lawsuits alleging that some chatbot interactions encouraged self-harm or suicidal behavior, while another case claimed that certain bots impersonated medical professionals. Earlier in 2026, the company and Alphabet settled a lawsuit brought by the mother of a 14-year-old Florida boy who died by suicide.
Character.AI said its services will continue during the bankruptcy and sale process, but warned that the platform could shut down permanently if no buyer is found. Disney is expected to support the transition through employees it previously hired from Character.AI.
Source: EntArabi
