Disney poached Character.AI’s former CEO to lead its tech efforts just weeks ago. Now, the media giant is making a bid for rights to some of the controversial AI startup’s assets.
Character.AI announced late Monday night that it had filed for Chapter 11 bankruptcy protection to pursue a court-supervised sale of all or substantially all of its assets. Disney has agreed to serve as the initial bidder, offering $20 million for a non-exclusive, perpetual license to certain Character.AI intellectual property and other claims.
Other potential buyers can still submit higher or better offers. In its bankruptcy filing, Character.AI listed between $50 million and $100 million in estimated assets, along with the same range in liabilities.
For now, Character.AI says its platform will continue operating without any major disruptions. However, the company warned that it could eventually shut down the service if it fails to find a buyer willing to keep it running. Character.AI expects to complete the sale process by late November or early December.
“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,” said Character.AI CEO Colin Adams in a press release. “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.”
Character.AI is an AI platform, founded in 2021, best known for letting users create and interact with chatbots based on fictional characters, celebrities, and original personas. Meanwhile, the company has faced a number of controversies.
Earlier this year, Character.AI and Google agreed to settle multiple lawsuits brought by families who alleged their children suffered psychological harm after interacting with Character.AI chatbots. One lawsuit, brought by a Florida mother, alleged the app contributed to her 14-year-old son’s suicide. Another lawsuit, filed in Texas, alleged that Character.AI chatbots encouraged a 17-year-old to harm himself and told him that killing his parents would be an acceptable response to his parents’ screen-time restrictions.
Character.AI announced major changes for younger users in October 2025, including new age checks and a ban on open-ended chats for users under 18.
Even Disney had some beef with the company.
In September 2025, Disney sent Character.AI a cease-and-desist letter demanding that it stop allowing users to create unauthorized chatbots based on Disney-owned characters. Character.AI ended up removing the characters, and the dispute did not escalate into a lawsuit.
Despite that dispute, Disney announced last month that it had hired former Character.AI CEO Karandeep Anand as a senior executive vice president and its first-ever chief technology officer. Several Character.AI technical employees were also expected to join Anand at Disney.
Now, the media company appears to be interested in more than just Character.AI’s employees.
Disney did not immediately respond to a request for comment.
