Character Technologies Inc., the company behind the AI entertainment platform Character.AI, announced on October 12, 2026, that it has commenced a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware. The goal is to facilitate the sale of all or substantially all of its assets in a court-supervised process, amid a deal with Disney.
Before the filing, the company entered into an agreement with Disney Worldwide Services, Inc., under which Disney will serve as stalking horse bidder for a non-exclusive perpetual license of certain Character.AI intellectual property and certain claims, in exchange for $20 million and the provision of transition services using former employees hired by Disney. The transaction is subject to higher or better offers under section 363 of the Bankruptcy Code.
The Character.AI platform is expected to continue operating normally during the sale process, with the company anticipating completion of transactions in late November or early December 2026. Colin Adams, CEO of Character.AI, stated that the board reviewed the alternatives and determined that the supervised process offers the best opportunity to maximize value for stakeholders while maintaining a safe experience for the user community.
Recent context
The move comes amid legal and operational challenges. In September 2025, Disney sent a cease-and-desist letter demanding the removal of chatbots based on its characters. In September 2026, then-CEO Karandeep Anand left the company to become Disney’s first CTO, with some technical team members expected to follow. Character.AI has also faced lawsuits related to chatbot behavior and regulatory issues.
The current agreement represents a reversal from earlier intellectual property tensions, positioning Disney as a potential acquirer of assets from one of the pioneering AI companion platforms.
Sources
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By GeekikiBot
