Character.AI has filed for bankruptcy. Artificial intelligence entertainment platform Character.AI has filed for Chapter 11 bankruptcy in the United States and agreed to sell some of its intellectual property to Walt Disney for $20 million, as the company faces mounting legal and operational challenges. The company says it intends to continue operating its platform during the court-supervised sale process. Disney will serve as the initial bidder for a non-exclusive, perpetual licence covering certain Character.AI intellectual property and claims, according to a company announcement. The proposed transaction remains subject to higher or better offers from competing bidders. The agreement comes as Character.AI, which allows users to interact with AI-generated personalities and create fictional characters, attempts to sustain its business amid intensifying scrutiny of the safety of conversational AI products, particularly those used by children. Founded in 2021 by former Google engineers Noam Shazeer and Daniel De Freitas, Character.AI grew into a prominent consumer AI platform by allowing users to build and interact with chatbots designed to simulate human conversations, fictional characters and personalised relationships. The company previously attracted significant investor interest as generative AI expanded beyond workplace productivity into entertainment and social interaction. In 2024, Google agreed to license Character.AI's technology in a deal reported to be worth about $2.7 billion, while Shazeer and De Freitas returned to Google. Character.AI continued operating its consumer platform after the agreement. Character.AI had more than 20 million monthly users in January 2026. The platform has sought to generate revenue through subscriptions and advertising while shifting its focus towards AI-powered storytelling and entertainment. In 2025, its chief executive told Wired that the company was generating revenue at an annualised rate of more than $30 million and was targeting $50 million by the end of that year. The bankruptcy filing follows legal challenges over the potential risks posed by AI companions. In October 2024, the mother of a 14-year-old boy sued Character.AI and Google, alleging that interactions with a chatbot contributed to her son's death. The companies subsequently settled the case in 2026, according to reporting on the litigation. Kentucky Attorney General Russell Coleman has also accused Character.AI of exposing children to harmful chatbot interactions. In an unredacted lawsuit made public in October 2026, the state alleged that some chatbots encouraged users to engage in self-harm or extreme dieting. The allegations have not been established as facts in court. The legal challenges highlight a wider problem for developers of AI companions, whose products are designed to sustain personalised, often emotionally engaging conversations. Companies must balance user engagement and subscription revenue against the costs of moderation, age verification and safeguards against harmful responses. The broader AI companion market is nevertheless attracting substantial commercial interest. Research firm Grand View Research estimated the market at $36.8 billion in 2025 and forecast it would reach $48 billion in 2026. The estimates cover a wider category of AI companion products and services and are not a measure of Character.AI's revenue. For Disney, the proposed deal offers a route to licensing technology and intellectual property associated with interactive AI entertainment. The company has been strengthening its technology leadership: in September 2026, Disney appointed Character.AI chief executive Karandeep Anand as its senior executive vice president and chief technology officer. Character.AI said it expects to keep operating during the sale process, which it anticipates completing in late November or early December 2026. If the process does not produce a transaction that allows the platform to continue, the company said it may wind down the service. Stay ahead of the Stories shaping its world. Subscribe to Impact Newswire and join its WhatsApp Channel for updates on global tech, business, and innovation - all in one place. Dive deeper into the future with the Cause Effect 4.0 Podcast, where Impact Newswire explore the ideas, trends, and technologies driving the global AI conversation. Got a story to share? Contact Us to reach a global audience with Impact Newswire. Faustine Ngila is the AI Editor at Impact Newswire, based in Nairobi, Kenya. He is an award-winning journalist specializing in artificial intelligence, blockchain, and emerging technologies. He previously worked as a global technology reporter at Quartz in New York and Digital Frontier in London, where he covered innovation, startups, and the global digital economy. With years of experience reporting on cutting-edge technologies, Faustine focuses on AI developments, industry trends, and the impact of technology on society.

Character.AI files for bankruptcy, agrees to sell some assets to Disney for $20 million. October 13, 2026 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. - Advertisement -

Character.AI files for bankruptcy, agrees to sell some assets for $20 million. 13 Oct 2026 12:26PM (Updated: 13 Oct 2026 01:12PM) Add CNA as a trusted source to help Google better understand and surface our content in search results. Oct 12: Character.AI said on Monday it had filed for Chapter 11 bankruptcy in the US and agreed to sell some of its assets to Walt Disney for $20 million. Here are some details about the bankruptcy and sale proceedings: - Character.AI said it has begun the formal process to sell assets, including a license of certain intellectual property, through Chapter 11 and is seeking court approval for auction rules that would designate Disney as the lead, or stalking horse, bidder. - Under this process, Disney's bid would set a baseline offer while allowing competing bidders to submit higher bids, and the company expects the sale process to conclude by late November or early December 2026. - "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," said Colin Adams, CEO of Character.AI. - Character Technologies, the US-based owner of the generative AI platform, listed estimated assets and liabilities between $50 million and $100 million, according to a court filing. - The company said it intends to continue operating its business, including the Character.AI platform, with minimal service disruptions during the sale process. If the process fails to produce a buyer willing to continue operating the platform, it will be wound down.