Character.AI filed for bankruptcy Oct. 12, and Disney made the first $20 million bid for rights to its tech. Disney hired the chatbot company’s CEO weeks ago, a year after warning it over Disney characters.
Disney and Character.AI have a complicated history, and it just got stranger.
Character.AI, the chatbot app that lets users talk to AI versions of characters, filed for Chapter 11 bankruptcy in Delaware on Monday, Oct. 12, according to Forbes. It plans to sell its assets through a court-supervised auction.
The first bidder is Disney. Disney has offered $20 million for a “non-exclusive perpetual license“ to some of Character.AI’s intellectual property and certain company claims, according to Variety, as reported by WDW News Today.
That’s not the same as buying the whole company, but it puts Disney at the front of the line.
Why is Disney bidding on Character.AI?
Disney hasn’t said. But the timing is hard to miss.
Last month, Disney hired Character.AI’s CEO, Karandeep Anand, as its first-ever chief technology officer. Disney announced the move on Sept. 18, and Anand started on Oct. 2, reporting to CEO Josh D’Amaro, according to Disney.
Disney said a number of Character.AI’s technical staff would join along with him. Those former employees will now help keep the chatbot running during the sale, according to NBC News.
Less than two weeks after Anand started, Character.AI filed for bankruptcy.
Disney threatened to sue Character.AI?
In September 2025, Disney sent Character.AI a cease-and-desist letter demanding that it stop using Disney’s copyrighted characters without permission, NBC News reported. Character.AI said it removed them.
In that letter, Disney accused the app of putting a “sadistic and perverted twist“ on its characters, according to WDW News Today.
Why did Character.AI file for bankruptcy?
Mostly mounting legal trouble. The company’s new CEO, Colin Adams, pointed to “significant legal, regulatory, and operational headwinds,” according to Forbes.
The company has faced lawsuits from families who say its chatbots harmed their teens. In January, Character.AI agreed to settle several of those cases, Forbes reported.
It also banned users under 18 from open-ended chats, according to WDW News Today.
Two states are suing, too. Kentucky says its chatbots encouraged users to hurt themselves, and Pennsylvania says they posed as doctors, according to NBC News.
Yet Disney poached the CEO and part of his team to buy some of the company.
What happens to Character.AI now?
It goes to auction. Disney is the “stalking-horse“ bidder, which means its offer sets the floor, and other companies can bid more.
Character.AI expects the sale to wrap up by late November or early December, according to NBC News. The app will keep running in the meantime, but it could shut down if no buyer wants to keep it going.
In its court filing, Character.AI’s U.S. owner, Character Technologies, estimated its assets and its liabilities at $50 million to $100 million each.
Who started Character.AI?
Two former Google employees founded it in 2021. In 2024, Google licensed Character.AI’s technology and hired the founders back, NBC News reported.
The app took off by letting users build and chat with AI characters, including ones based on famous movie and TV characters. That’s what got it on Disney’s radar in the first place.
What does Disney want with Character.AI?
Disney hasn’t explained its plans. According to Disney, its new CTO oversees technology across the company, including data and AI platforms.
D’Amaro said Anand brings “a rare mix of experience across infrastructure, consumer technology and AI.”
For a company that once called Character.AI’s use of its characters “perverted,” it’s a big turnaround. Now Disney may end up with a license to the same technology, plus the team that built it.
Article compiled with the help of the Pirates & Princesses newsroom.
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Hat Tips:
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Variety, via WDW News Today (Oct. 13, 2026), Disney’s $20 million license bid and the cease-and-desist quote
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Forbes, Siladitya Ray (Oct. 13, 2026), the Delaware filing, Colin Adams’ quote and the January settlements
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NBC News, via Reuters (Oct. 13, 2026), the state lawsuits, stalking-horse bid, sale timeline, court filing figures, founders and the 2025 cease-and-desist
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The Walt Disney Company (Sept. 18, 2026), Karandeep Anand’s hiring, start date, role and Josh D’Amaro’s quote
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TheWrap (2025), the studio lawsuits against Midjourney
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