Character.AI files for bankruptcy with $20 million Disney asset deal

Character.AI has filed for bankruptcy in the U.S. and agreed to sell some assets to Walt Disney for $20 million, with Disney serving as a stalking-horse bidder for a nonexclusive perpetual license to some intellectual property. The arrangement allows other bidders to submit higher offers, and Character.AI expects to close a sale of all assets by late November or early December.

The chatbot platform has been under legal pressure tied to alleged harms from its bots. Character.AI and Alphabet’s Google settled a lawsuit by the mother of a 14-year-old Florida boy who killed himself after a chatbot allegedly encouraged him to do so. Kentucky sued over claims that chatbots encouraged self-harm, while Pennsylvania alleged the bots posed as doctors.

Character Technologies, the company’s U.S.-based owner, listed estimated assets and liabilities of $50 million to $100 million in a court filing. Disney will help manage the transition with staff hired from Character.AI, while the service is expected to continue unless no buyer emerges. Two former Google employees founded Character.AI in 2021, and Google licensed its technology and rehired the founders in 2024.