Character.AI, a platform for interacting with chatbots, has declared bankruptcy

Character.AI, an AI platform for interacting with chatbots, has announced bankruptcy and the potential sale of some assets to The Walt Disney Company for $20 million.

As reported by Reuters, the application was filed under Chapter 11 – a legal mechanism in the US that allows bankrupt companies to continue operating whilst restructuring or selling assets.

In Character.AI's case, this involves the partial sale of assets, specifically licenses for certain intellectual property. The company has asked the court to approve the auction rules, under which Disney will act as the opening bidder and set a reserve price of $20 million, while competitors can submit higher bids. The sale process is expected to be completed in November–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," Colin Adams, CEO of Character.AI, said.

According to court documents, Character Technologies – the US company that owns the Character.AI platform – has valued its assets and liabilities at between $50 million and $100 million. The company has said it will maintain Character.AI's operations "with minimal disruption" while the sale is underway. If no buyer is found who is prepared to continue operating the platform, it will be shut down.

A legal case is reportedly ongoing in the US against Character.AI, with allegations of dangerous behavior by its chatbots. According to the lawsuit filed by the Attorney General of Kentucky, some of the chatbots allegedly encouraged users to go on hunger strikes and inflict physical harm on themselves.