Character.ai Files for Bankruptcy as Disney Offers $20M for Technology

Character.ai, an AI chatbot platform where users create and interact with virtual characters for entertainment, role-playing and companionship, has filed for Chapter 11 bankruptcy protection in the US. Disney has offered $20 million for a licence to some of its intellectual property as part of a court-supervised sale process.

Character.ai plans to continue operating during the proceedings, with a sale expected to conclude by late November or early December. The company reported assets and liabilities of between $50 million and $100 million.

Despite attracting approximately 12 million users, Character.ai has struggled financially. The platform generated around $5.3 million in revenue in August 2026, including ~$2.5 million from advertising, but has been recording monthly operating losses of $8 million to $9 million.

The company has also faced lawsuits over allegations that its chatbots exposed minors to harmful content and encouraged self-harm. In 2024, Megan Garcia sued Character.ai following the suicide of her 14-year-old son, alleging that his interactions with a chatbot contributed to his death. Other families subsequently filed similar lawsuits. Character.ai and Google reached preliminary settlements in five cases earlier this year, although the settlements have not yet been finalised.

Founded in 2021 by former Google researchers Noam Shazeer and Daniel de Freitas, Character.ai was valued at approximately $1 billion in 2023 after raising $150 million. Its former CEO, Karandeep Anand, joined Disney as chief technology officer in September. The bankruptcy sale will determine whether Character.ai can continue operating under new ownership.

Source: SFIST