Character.AI Files for Chapter 11 as Disney Leads With $20 Million Bid for IP License

Character.AI, the chatbot platform run by Character Technologies, has filed a voluntary Chapter 11 case in the US Bankruptcy Court for the District of Delaware, according to reports published October 13. The company said it had assets and liabilities between $50 million and $100 million, and agreed to a sale of some assets to Disney (DIS) for $20 million.

The structure matters. Disney is set to act as stalking horse bidder, offering $20 million plus transition services in exchange for a non-exclusive, perpetual license to certain Character.AI intellectual property and claims. A stalking horse bid sets the floor, and other interested parties can still submit higher bids. The reports describe a license rather than a purchase of the whole platform.

The company said it intends to keep operating its platform during the sale process, but that if the sale does not provide for the platform to continue, it will be wound down. The reports tie the filing to legal pressure. The Telegraph described the company as blamed for the suicide of Sewell Setzer, a 14-year-old from Florida, and said it had been battling a series of lawsuits accusing it of putting children at risk. TechCrunch reported that the company subsequently settled some of these lawsuits. Separately, Disney sent the company a cease-and-desist letter in September 2025 demanding that it stop using Disney's copyrighted characters.

Investors and creditors may watch whether rival bidders emerge above the $20 million floor, how the court treats the sale, and whether the platform survives under a new owner. The $20 million price compares with estimated liabilities of $50 million to $100 million, which could signal limited recoveries for creditors, though the final outcome will depend on the bidding process.