Character.ai has filed for Chapter 11 bankruptcy, and Disney is first in line for a piece of what the chatbot company is selling. Character Technologies, which runs the Character.ai platform, opened a voluntary Chapter 11 case on October 12 in the U.S. Bankruptcy Court for the District of Delaware, with the goal of selling all or nearly all of its assets under court supervision.
Before filing, the company signed a deal with Disney Worldwide Services, Inc. Disney will act as the stalking horse bidder for a non-exclusive, perpetual license to certain Character.ai intellectual property and certain company claims. In exchange, Disney would pay $20 million and provide transition services using former Character.ai employees it has already hired, according to the company’s announcement.
What Disney Is Actually Bidding On
A stalking horse bid sets the floor for an auction. Other buyers can still come in with higher or better offers, so Disney’s $20 million is a starting point rather than a done deal. Character.ai has asked the court to approve its bidding rules and formally name Disney the stalking horse for those assets, and the court still has to sign off.
The license is non-exclusive, which means Disney would not own the technology outright or keep anyone else from licensing it. The transition services are meant to help Character.ai keep its platform running safely for a limited time while the sale plays out.
The employee piece ties back to a hire Disney made last month. Disney named former Character.ai CEO Karandeep Anand as its first Chief Technology Officer in September, and the company has since hired other members of the Character.ai team. Disney has brought in Skadden, Arps, Slate, Meagher & Flom as its legal advisor on the deal.
What Happens To Character.ai Users
For now, nothing changes for people who use the app. Character.ai says the platform is up and running, paid subscriptions remain active and billing is unchanged. It has promised to tell subscribers in advance if paid features change. It has also asked the court for permission to keep paying employees’ wages and benefits during the case.
The company expects the sale to wrap up in late November or early December 2026. Character.ai has been clear that the platform’s future depends on the outcome: if no bid comes in that allows the service to keep operating, it will be wound down.
“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” CEO Colin Adams said. “After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders.”
It is a sharp turn in the relationship between the two companies. A little over a year ago, in September 2025, Disney sent Character.ai a cease-and-desist letter demanding that it stop using Disney’s copyrighted characters on its platform. Now Disney is the bidder every rival will have to beat.
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