Character Technologies Inc., the Menlo Park company behind the Character.AI chatbot and role-play service, filed a voluntary Chapter 11 petition with the federal bankruptcy court in Delaware on October 12, 2026. The company wants the court to oversee a sale covering all or nearly all of its assets, and it plans to keep the platform online while it looks for buyers. If no bidder is willing to carry the service forward, Character.AI says it will shut the platform down.
Disney has already set the opening price. Before the filing, Character.AI agreed terms with Disney Worldwide Services, Inc., which will act as the stalking-horse bidder. Disney would pay $20 million for a perpetual, non-exclusive license to certain Character.AI intellectual property and to certain legal claims the company holds. Disney has also hired some former Character.AI employees and will use them to provide transition services, which the company says will let it run the platform safely for a limited period and keep the sale on track.
A stalking-horse offer is a floor, not a final price. Section 363 of the U.S. Bankruptcy Code lets rival bidders top it, and Character.AI has asked the court to approve bidding procedures that would formally make Disney the lead bidder for some of its assets. The company expects the auction to wrap up, and any resulting deals to close, around the end of November or the start of December 2026. The case carries No. 26-11603, according to the case website maintained by Stretto, the claims and noticing agent.
The petition gives a rough sense of scale. Reuters, citing the court papers, reported that Character Technologies put both its estimated assets and its estimated liabilities in a range of $50 million to $100 million. Character.AI has retained Wilson Sonsini Goodrich & Rosati as legal counsel, Areté Partners as restructuring adviser and Houlihan Lokey as investment banker. Disney is being advised by Skadden, Arps, Slate, Meagher & Flom.
Chief executive Colin Adams said the company had spent the past year trying to stabilize the business against legal, regulatory and operational pressure, and that the board, after weighing other options, judged a supervised sale to be the best route to value for stakeholders. Neither the press release nor the note to users spells out which pressures weighed most, and the announcement does not say whether any other bidder has shown interest.
For users, Character.AI says nothing changes immediately. Paid subscriptions stay active and billing is unchanged for now, and the company says it will warn subscribers ahead of any change that affects paid features. It describes its privacy policy and security practices as unaffected and reminds users that they can export their data or delete their accounts. It has also filed first-day motions asking the court to let it keep paying staff wages and benefits, honor commitments to users and cover vendor and partner obligations incurred after the petition date.
Disney's role stands out given the history between the two companies. In September 2025, Disney sent Character.AI a cease-and-desist letter demanding that it stop using Disney's copyrighted characters without permission, according to Axios, which obtained the letter. Character.AI said at the time that the characters had been removed and that it wanted to work with rights holders so they could bring their characters onto the platform on their own terms. A year later, Disney is positioned to secure lasting, though non-exclusive, rights to some of Character.AI's intellectual property, on top of the former staff it has already hired. The release does not identify which intellectual property the license covers.
Much remains unsettled. Disney's offer is for a license, not for the company or its consumer service, so the auction will decide whether anyone takes on the platform Character.AI has run since its founding in 2021, which now offers chat, books, series and comics formats. Until bidding closes, the service's survival depends on finding a buyer who wants to operate it.