Character.AI Goes Bankrupt as Disney, Which Hired Its CEO, Bids for Assets

WILMINGTON, Del. — The chatbot platform that 20 million people used every month two years ago will be wound down unless someone bids to keep it running, its chief executive said after the company behind it filed for bankruptcy.

Character Technologies, the Redwood City, California, maker of Character.AI, filed for Chapter 11 protection on Monday, October 12, in the US Bankruptcy Court for the District of Delaware, Case 26-11603, to run a court-supervised sale. Disney is the opening bidder, not yet the owner: $20 million for a non-exclusive, perpetual licence to some of the company’s intellectual property and certain company claims, a price other bidders can try to beat, according to the company’s announcement, with any sale expected to close in late November or early December. Colin Adams, the chief executive, who signed the petition on the company’s behalf, said the board chose the court-supervised route because it offered the “best opportunity to maximize value for all stakeholders,” according to TechCrunch.

The petition is thin on numbers and heavy on names. Google, which paid $2.7 billion in August 2024 to license Character.AI’s models and bring its two founders back in-house, is now the largest of the 20 biggest unsecured claims the company had to list, owed $4,148,944 for what the form calls a trade payable. The opening bidder is a company that sent Character.AI a cease-and-desist letter over its characters last year. The $20 million bid is less than five times what the company owes Google alone, and because the licence is non-exclusive, Disney would be getting the right to use the technology, not sole claim to it.

Four days before the filing, on October 8, the board created a restructuring committee to weigh options in light of the company’s cash flow, liquidity and contingent liabilities. Its three members, Christopher Sontchi, Rick Marini and Stan Chudnovsky, signed the consent that authorised the petition on Monday.

A startup that reached a valuation above $1 billion on a $150 million raise in September 2022 now reports assets and liabilities of between $50 million and $100 million, TechCrunch reported. Those are the company’s own estimates, not audited accounts. Investors put in more than $193 million, according to PitchBook figures cited by TechCrunch, from backers including Andreessen Horowitz and Lightspeed. The company turned to the court, the report said, after a run of lawsuits and trouble scaling the platform.

Scale was never the problem. Within five months of launch, users had exchanged more than 2 billion messages and averaged over two hours a day on the app, TechCrunch noted, and every message costs money to generate. After Google, the voluntary petition lists the law firm Hogan Lovells, owed $2,125,026 in fees, then DigitalOcean at $1,953,100, Fireworks.ai at $813,900 and Apple Distribution International at $384,683. Four other law firms are on the list, and the five together hold about $2.6 million in claims. Further down are a network provider at $119,210 and a Palo Alto property manager at $70,362.

The claims nobody has priced sit at the bottom. The commonwealths of Pennsylvania and Kentucky, and a minor plaintiff whose name is redacted, are each listed with litigation claims marked contingent, unliquidated and disputed, amount unknown. The petition does not say which suits these are. TechCrunch reported in May that Kentucky’s attorney general, Russell Coleman, sued in January alleging the company “preyed on children and led them into self-harm,” and that Pennsylvania sued after a state investigator found a chatbot called “Emilie” presenting itself as a licensed psychiatrist and citing a medical licence serial number it had made up. A company representative told TechCrunch it had taken “robust steps,” including “prominent disclaimers in every chat,” and declined to comment on the litigation.

Character.AI has faced litigation since 2024, when the mother of a 14-year-old Florida boy who died by suicide said he had become obsessed with a chatbot on the platform. By TechCrunch’s account, Google and Character.AI negotiated the first major settlements in teen chatbot death cases in January, and the company banned minors from the service.

The overlap between bidder and seller is the part the filing does not explain. Disney announced on September 18 that Karandeep Anand, then Character.AI’s chief executive, would become its first chief technology officer, starting October 2, and that several members of Character.AI’s technical team were expected to join him, according to Disney’s own announcement. The company credited him with prioritising user trust and safety.

EH reported that Disney named Karandeep Anand its first CTO about three weeks before Character.AI filed. Now the former employees who moved to Disney last month, together with Anand, are to provide transition services under the sale, TechCrunch reported. None of the filings or reports reviewed says whether Anand or those employees are walled off from Disney’s side of the $20 million bid.

For the people still using the app, the position is open ended. The company will keep operating during the sale, Adams said, and the sale is meant to produce a proposal that lets the platform continue. If none comes, he said, “the platform will be wound down.” Character.AI’s own post on the filing says paid subscriptions remain active and billing is unchanged for now, and that users can delete their accounts or export their data. TechCrunch’s account mentions no rival bid.

The form leaves insiders off the list of largest claims, so it cannot show where Google’s $2.7 billion ended up. Nothing in the filing or the reports reviewed says.