Character.AI files for bankruptcy as Disney proposes $20 million asset deal
publishers 29articles 31first reported 13 Oct, 04:22 UTCdeveloping since 13 Oct · 10 editions
Character.AI has filed for Chapter 11 bankruptcy protection and is pursuing a court-supervised sale while keeping its chatbot platform operating. The company said it expects the sale process to conclude by late November or early December 2026, but warned that the service could be wound down if no viable bid emerges.
Disney Worldwide Services, an affiliate of the Walt Disney Company, has agreed to a $20 million transaction involving Character.AI’s technology and intellectual property. The deal requires bankruptcy-court approval and remains subject to higher offers. Character.AI attorney Erin Fay said Disney is not seeking users’ chat data or the operating chatbot business.
At the company’s first bankruptcy hearing in Delaware on Wednesday, representatives of 40 state attorneys general urged Judge Brendan Shannon to impose safeguards on any transfer of user information. The states cited the sensitivity of private conversations and Character.AI’s large population of younger users. They are seeking protections including stronger age checks, restrictions on minors’ chatbot interactions, crisis safeguards and tools allowing users to delete their data.
The states said investigations begun in 2024 found potential consumer-protection and privacy violations, including allegations that bots posed as licensed professionals and exposed children to sexual or violent material. Character.AI also faces lawsuits from families alleging its chatbots harmed children; the company has reached preliminary settlements with five families, according to CNA.
Character.AI says subscriptions and billing remain unchanged for now and that its existing privacy and security practices remain in effect during the bankruptcy process.
HOW THIS STORY WAS MADE
Written from 8 articles, 4 with the publisher's own text; 8 independent newsrooms once syndicated copies count as one; this version written 42 h after the record first saw the story; the editor kept it as written.
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- Source articles
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- Given to the writer
- 8, 4 with the article's own text
- Independent newsrooms
- 8
- This version written
- 42 h after the record first saw the story
- Second model (editor)
- kept as written
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WHAT THE EDITOR DID
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