Character.AI files for bankruptcy protection as Disney offers $20 million

Character.AI filed for bankruptcy protection in the United States and began a court-supervised asset sale. Disney Worldwide Services offered $20 million for certain assets and a perpetual, non-exclusive license to the technology, but there is not yet a final buyer; the offer could attract higher bids. The company says it will continue operating during a process expected to conclude in late November or early December 2026, but will wind down the platform if no viable proposal emerges. Subscriptions remain active for now.

The Verge reported that 40 bipartisan state attorneys general asked for safeguards for user data, citing the sensitive nature of conversations and the service’s use by minors. According to New York Attorney General Letitia James’ office, investigations identified risks involving sexual and violent content, weak age checks and potential privacy-law violations. The company also faces lawsuits related to child safety and allegations of harm caused by chatbots.