Character.AI Files for Bankruptcy, Agrees to Sell Assets to Disney for $20 Million
Chatbot startup Character.AI filed for Chapter 11 bankruptcy on Monday and agreed to sell some of its assets to Disney for $20 million. The company says it will keep operating during the sale, but it will shut down if no buyer agrees to keep it running.
Character.AI, the chatbot startup that became one of the first breakout successes of the generative AI boom, filed for Chapter 11 bankruptcy protection on Monday and agreed to sell some of its assets to Disney for $20 million.
Disney will be the initial bidder (known as a stalking-horse bidder) for a non-exclusive, perpetual license to some of Character.AI’s intellectual property. Other bidders can still top Disney’s offer, and the company expects the sale process to close in late November or early December.
The company said it would continue operating during the court-supervised sale. But it warned the platform will be wound down if the process does not produce a buyer willing to keep running it.
“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,” CEO Colin Adams said in a statement.
The filing listed estimated assets and liabilities of $50 million to $100 million each, according to TechCrunch, which reviewed the court document.
A long fall from the top of the AI boom
Character.AI was founded in late 2021 by former Google engineers Noam Shazeer, a co-author of the landmark Transformer paper, and Daniel De Freitas. It reached a unicorn valuation in September 2022 after a $150 million funding round, and said at the time that users had exchanged more than 2 billion messages with its chatbots in five months.
In August 2024, Google struck a $2.7 billion deal to license the startup’s models, and Shazeer and De Freitas returned to the search company. The startup reported 20 million monthly active users by October of that year.
Legal trouble followed. The company was sued after the suicide of a 14-year-old Florida boy whose mother said he had become obsessed with a chatbot on the platform, and Texas opened an investigation into whether the platform met child privacy and safety laws. Character.AI later settled some of the lawsuits, added safety features, and banned minors from the platform.
In June 2025, the company named former Brex and Meta executive Karandeep Anand as CEO and added AI video generation and social feeds to its products. Disney hired Anand last month to serve as its first chief technology officer, and Disney will provide transition services during the bankruptcy through former Character.AI employees it has hired.
The startup ranked among the top apps for time spent, according to analytics firm Sensor Tower, but that engagement came with high computing costs: AI models cost more to run the more people use them.
Character.AI raised more than $193 million from investors including Lightspeed, SV Angel, Greycroft, and Andreessen Horowitz, according to PitchBook data cited by TechCrunch.
Reporting based on coverage by TechCrunch and Reuters.
