Character.AI filed for Chapter 11 bankruptcy in the United States on Monday, October 12, 2026, and agreed to sell some of its assets to Walt Disney for $20 million. The AI entertainment platform said it plans to continue operating while the sale process moves forward.
The bankruptcy filing will allow Character.AI to pursue a court-supervised sale of its assets. Under the proposed arrangement, Disney would act as the lead bidder for certain assets, including a licence to some of Character.AI’s intellectual property. The agreement remains subject to the court-supervised sale process, which allows other potential buyers to submit higher or better offers.
Character.AI has sought court approval for the rules that will govern the sale. Disney’s proposed bid would establish the initial offer against which competing bids could be made. The company expects the sale process to conclude in late November or early December 2026.
Colin Adams, CEO of Character.AI, said the company’s board had reviewed the available alternatives before deciding to pursue the court-supervised sale. He said the board considered the process the best opportunity to maximise value for all stakeholders.
The company has faced legal, regulatory and operational challenges over the past year, according to its statement announcing the bankruptcy process. It said it had taken steps to sustain and improve its business before deciding to pursue a sale under Chapter 11.
Character.AI said it intends to keep its business running, including the Character.AI platform, with minimal disruption to services during the proceedings. The company has also sought approval for measures that would allow it to continue meeting certain employee, user, vendor and partner obligations during the process.
However, the platform’s future will depend on the outcome of the sale. Character.AI said it would wind down the platform if the process does not produce a buyer willing to support its continued operation.
The proposed transaction marks a significant development for the AI entertainment platform as it seeks to resolve its business challenges through a court-supervised asset sale. The $20 million agreement with Disney will serve as the starting bid for certain assets, while the process remains open to competing offers.
