Character.AI, one of the first startups in the generative AI boom, has filed for bankruptcy and is selling some of its assets to Disney. The company, which creates various online bots with which users can chat or roleplay, has faced increasing scrutiny and lawsuits over the security of its chatbots, but has continued to release updates and products in recent months.
In a press release and blog post published Monday, Character said it filed for Chapter 11 bankruptcy in the United States to facilitate the sale of the company and its assets. “Over the past year, we have taken significant steps to maintain and improve our business amid significant legal, regulatory and operational headwinds,” the company said.
In its bankruptcy filing, Character listed liabilities estimated at between $50 million and $100 million. Under the proposed sale, Disney would be the leading bidder for Character.AI’s assets, setting a benchmark for competing bids. Disney would pay $20 million for certain undisclosed assets and provide transition support “using former company employees it has hired.” It would also receive a non-exclusive license to unspecified intellectual property.
Disney’s involvement comes shortly after the entertainment giant hired former Character.AI CEO Karandeep Anand as chief technology officer as part of its growing push into AI. Anand’s tenure as CEO of Character lasted just over a year and during that time he oversaw the company’s move into microdramas. Disney has previously complained that Character was harming its brand and exploiting its intellectual property by allowing the use of unauthorized chatbots for its characters, including sending cease and desist letters.
Alongside Anand, Disney also said it expected “a number of members of the Character.AI technical team” to join the company. The move resembles a kind of “acquire” strategy that has become increasingly common in Silicon Valley as a way to suck up talent from startups, sometimes leaving the original company struggling to survive. Character.AI has already survived it once: Google spent more than $2 billion to hire much of the company’s talent, including co-founders Noam Shazeer and Daniel De Freitas, in 2024.
Character said it expects the sales process to be completed by late November or early December and plans to continue operating its services, including paid subscriptions, in the meantime. However, the company has warned that “the platform will be closed” if a suitable offer does not emerge. “As we navigate this process, maintaining a safe and engaging experience for our community remains a top priority,” he said.
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