CONFIRMED: Character.AI announced the Chapter 11 filing and the Disney agreement on 12 October 2026 (US time).
Character Technologies Inc., the company behind the Character.AI chatbot platform, has “commenced a voluntary Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware” to “facilitate a value-maximizing sale of all or substantially all of its assets” [2]. Reuters also reported the filing.
Chapter 11 is the part of US bankruptcy law that lets a company keep running under court protection while it restructures or, as here, sells itself.
Disney’s offer: a licence, not a takeover
Before filing, the company agreed a deal with Disney Worldwide Services, Inc., under which Disney “will serve as stalking horse bidder for a non-exclusive perpetual license of certain Company intellectual property and certain Company claims, in exchange for $20 million and Disney’s provision of transition services using former Company employees it has hired” [2].
To be clear: Disney is not buying Character.AI. It is bidding for a permanent but non-exclusive right to use some of the company’s intellectual property and certain claims. “Non-exclusive” means others could be licensed the same things. Part of Disney’s offer is help running the platform, provided by former Character.AI staff Disney has hired. The company says these transition services “will help the Company safely operate using its platform for a limited period of time and support its sale process” [2].
What “stalking horse” and “section 363” mean
A stalking-horse bidder makes the first agreed offer in a bankruptcy sale. It sets a minimum price and terms, and other buyers can then try to beat it.
Section 363 of the US Bankruptcy Code lets a company in bankruptcy sell assets with the court’s approval, usually through an open auction.
The Disney deal “is subject to higher or better offers under section 363 of the Bankruptcy Code” [2]. The company has asked the court to approve bidding procedures and to name Disney “a stalking horse purchaser for certain of the Company’s assets” [2].
Timeline
The company expects “the completion of the Sale Process and the closing of any resulting transactions will occur in late November or early December 2026” [2]. Its blog puts it as “by the end of November or perhaps early December 2026” [1].
Will Character.AI keep running?
For now, yes. “The Character.ai platform remains up and running, and you can continue to access all services at this time,” the company says [1]. Subscriptions “remain active, and billing is unchanged for now” [1].
But it warns: “To the extent the Sale Process does not result in a purchase that provides for a continuation of the Character.ai platform, the platform will be wound down” [2].
Why it filed
Chief executive Colin Adams said: “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.” He added that the board “determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders” [2].
Court filings are published by the company’s claims agent, Stretto, at https://cases.stretto.com/chartech [2].
Sources
- Character.ai blog, “An Update on Character.ai”, 12 October 2026. https://blog.character.ai/an-update-on-character-ai/
- Business Wire via FinancialContent, “Character.ai Initiates Voluntary Chapter 11 Proceeding to Facilitate Value-Maximizing Sale Process”, 12 October 2026. https://www.financialcontent.com/article/bizwire-2026-10-13-characterai-initiates-voluntary-chapter-11-proceeding-to-facilitate-value-maximizing-sale-process
