Character.AI Files for Chapter 11 as Disney Bids $20 Million for an IP License

The filing

Character.AI filed for Chapter 11 bankruptcy Monday, Oct. 12, and agreed to Disney’s $20 million opening bid for a non-exclusive perpetual license to certain intellectual property, subject to higher offers. Compute spending of $10 million a month in 2025 exceeded peak monthly revenue of $5.3 million from all sources. The chatbot platform will shut down if the sale produces no buyer willing to keep it operating.

The company, now led by CEO Colin Adams, filed voluntarily in U.S. Bankruptcy Court in Delaware to begin a court-supervised sale of all or substantially all of its assets. Character Technologies, its U.S. owner, listed estimated assets and liabilities of $50 million to $100 million each.

The platform remains open, with subscriptions active and billing unchanged for now. The company says it intends to notify subscribers before changes affect paid features. The sale is expected to finish in late November or early December 2026.

Disney’s bid

Disney Worldwide Services’ opening bid covers a license to unspecified company intellectual property and claims. Disney has the right to match.

Disney will also provide transition services for a limited time through former Character.AI employees it hired, helping keep the platform running during the sale.

In September 2026, Disney hired former Character.AI CEO Karandeep Anand as its first chief technology officer, reporting to CEO Josh D’Amaro. A year earlier, Disney had sent the startup a cease-and-desist letter over unauthorized use of its characters. Character.AI removed them.

Operating costs

Adams’s court declaration describes compute spending of $13.8 million a month in 2024 and $10 million a month in 2025. Subscription revenue peaked at $2.8 million monthly, sometimes falling below $1 million.

The financial figures come from published excerpts of Adams’s declaration; the full document was not available for this article.

From January through August 2026, Character.AI spent $56.1 million on compute and $19.7 million on salaries and benefits. By August, it was still losing approximately $8 million to $9 million a month.

The filing cites potential litigation liabilities and regulatory engagement among the reasons for its cash shortfall. In early 2026 it settled five family lawsuits, including a Florida mother’s suit over her 14-year-old son’s suicide. Kentucky and Pennsylvania, both listed as creditors, sued in January and May 2026, respectively.

The company moved workloads to cheaper GPUs, adapted open-weight models instead of developing foundation models, cut staff, and introduced advertising in mid-2025 and in-app purchases in early 2026.

At the October filing, Google was the largest creditor, owed more than $4 million. Google’s $2.7 billion deal in August 2024 licensed Character.AI’s models and brought founders Noam Shazeer and Daniel De Freitas back to Google.

Users’ data

Character.AI, with more than 20 million monthly active users, says user information continues to be protected under its privacy policy. That policy allows disclosure of “certain information” during negotiations or completion of an asset sale. It does not define what that includes or require a buyer to follow the same privacy terms.

The company has not said whether users’ chats are among the assets for sale.

Bankruptcy law requires a consumer privacy ombudsman when selling personal data would conflict with a company’s privacy policy. Character.AI could argue that its policy already permits a transfer, although a judge can still appoint an ombudsman. As of Tuesday, Oct. 13, no one had asked the court to do so.

Calli Schroeder, senior counsel at the Electronic Privacy Information Center, called that protection weak because privacy policies often contain exceptions permitting data sharing.

Users can export their data or delete their accounts through the app or website. The policy allows the company to retain information needed for legal obligations or disputes, and public characters can remain active after account deletion.

“The bankruptcy code should be updated to explicitly provide protections for personal data considered an asset in the event of bankruptcy,” Schroeder said.

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Marcus Schuler

San Francisco

Editor-in-Chief and founder of Implicator.ai. Former ARD correspondent and senior broadcast journalist with 10+ years covering tech. Writes daily briefings on policy and market developments. Based in San Francisco. E-mail: editor@implicator.ai