# Character.AI Files for Chapter 11 as Disney Bids $20 Million for Parts

- URL: https://usa-24.com/character-ai-bankruptcy-disney-bid-2/
- Publisher: USA 24
- Section: Artificial Intelligence (AI)
- Published: 2026-10-20T01:13:08.505Z
- Updated: 2026-10-20T01:13:08.509Z
- Topics: Character.AI, Chapter 11, Disney, AI Chatbots, Data Privacy

> Character.AI filed for Chapter 11 in Delaware, and Disney opened with a $20 million bid for parts of the companion chatbot company. State attorneys general want chat-data protections in any sale.

## Key takeaways

- Character Technologies, which runs Character.AI, filed a voluntary Chapter 11 case in Delaware on October 12, 2026, and most reports use that date.
- Disney offered $20 million as the stalking-horse bidder for a non-exclusive, perpetual license to certain intellectual property and company claims.
- Forbes reported on October 19 that the proposed license excludes user data, conversations, training data, finished models, the brand and the consumer app.
- Bids are due November 20, an auction would run November 23 if needed, and the sale hearing is set for November 24, subject to court approval.
- A coalition of state attorneys general filed a notice on October 15 asking the court for consumer-data safeguards in any sale.

## Character.AI bankruptcy: what the filing says

The Character.AI bankruptcy case opened on October 12 in the U.S. Bankruptcy Court for the District of Delaware, and Disney is already first in line to buy parts of the companion chatbot company. Character Technologies, which runs Character.AI, filed a voluntary Chapter 11 case that day, according to [CBS News](https://www.cbsnews.com/news/character-ai-files-bankruptcy-disney-license/). A handful of outlets dated the filing October 13, but most reports say October 12.

Chapter 11 lets a company keep operating while it looks for a buyer under court supervision. This sale runs as a stalking-horse process, which means Disney's offer sets the floor and rival buyers can top it. Estimated assets and liabilities fall between $50 million and $100 million, according to [Yahoo Finance](https://finance.yahoo.com/technology/ai/articles/disney-seeks-buy-character-ai-041300121.html).

The app keeps running during the case. If no buyer agrees to run it, the company says it would wind the business down.

## Disney's $20 million opening bid and what it covers

Disney offered $20 million for a non-exclusive, perpetual license to certain intellectual property and company claims, [Deadline reported](https://deadline.com/2026/10/disney-character-ai-chapter-11-bankruptcy-1237155582/). It is an opening number, and no deal is final. Disney also agreed to provide transition support through former Character.AI employees.

The more important detail is what the license leaves out. [Forbes reported on October 19](https://www.forbes.com/sites/maureenkerr/2026/10/19/disney-hired-bankrupt-characterai-engineers-not-its-characters/) that the proposed license excludes user data, conversations, training data, finished models, the brand and the consumer app. The same report says Disney has hired most of Character.AI's workforce. Former CEO Karandeep Anand joined Disney as chief technology officer in September.

Those exclusions come from one outlet's reporting, so readers should treat them as reported rather than confirmed. The court filings and sale documents will settle the point. If the exclusions hold, the most sensitive assets stay out of Disney's hands, and their fate depends on the bankruptcy court.

Disney's interest has a history. The studio sent Character.AI a cease-and-desist over unauthorized chatbots built on its characters, and that dispute ended without a lawsuit after the characters were removed, according to [The Hollywood Reporter](https://www.hollywoodreporter.com/business/digital/disney-may-buy-character-ai-chatbot-chapter-11-bankruptcy-1236728629/). Disney had also licensed its characters to OpenAI for Sora last year, a deal that was later unwound.

## Why Character.AI says it cannot keep operating as is

The company cited high costs and potential litigation liabilities as reasons it cannot generate enough cash to keep operating in its current form. In a company statement, CEO Colin Adams said the company took "meaningful steps" to sustain the business despite "significant legal, regulatory, and operational headwinds," as [CBS News reported](https://www.cbsnews.com/news/character-ai-files-bankruptcy-disney-license/).

The company's road to this point started with Google. Character.AI was founded in 2021 by former Google AI staffers Noam Shazeer and Daniel de Freitas, who have since returned to Google. After a Google licensing deal, the company shifted away from building foundation models and toward consumer chatbot products, according to [Yahoo Finance](https://finance.yahoo.com/technology/ai/articles/disney-seeks-buy-character-ai-041300121.html). Deadline reported that the company had been valued at about $1 billion after a $150 million funding round.

Lawsuits are the other part of the story. Earlier in 2026, Character.AI and Google agreed to settle several suits from families who said teens died by suicide or self-harmed after using the platform. The company settled a wrongful-death suit from a Florida family, and Kentucky sued the company in January, per [Deadline](https://deadline.com/2026/10/disney-character-ai-chapter-11-bankruptcy-1237155582/).

## Who gets the chat logs if the sale closes

This is the question most users will ask, and the reporting does not answer it yet. If the Forbes account is accurate, user data and conversations sit outside Disney's proposed license. The reporting I reviewed does not say what happens to those records instead.

User numbers also conflict. One report cites about 12 million monthly active users, and another cites 163 million registered users since the 2022 launch. [TechTimes](https://www.techtimes.com/articles/329052/20261015/characterai-bankruptcy-puts-intimate-chats-21m-users-auction-block-40-ags-warn.htm) puts the figure at 21.6 million U.S. accounts. Until a court filing gives a verified count, treat any single number as provisional.

Chat data has drawn scrutiny in other products, too. USA 24 has reported on [how ChatGPT ads can target users by email and phone number](https://usa-24.com/chatgpt-ad-targeting-email-phone/), and on [how Amazon's Bee wearables record conversations](https://usa-24.com/amazon-bee-ai-wearable-privacy/). The common question is who controls the recordings once the company changes hands.

## State attorneys general want data rules in any sale

On October 15, a coalition of state attorneys general filed a notice in the bankruptcy case asking for safeguards on children's and consumers' data in any sale. Michigan, Connecticut, Delaware, Massachusetts and Washington are among the states involved. Delaware's filing is [posted on the state AG's site](https://news.delaware.gov/2026/10/15/ag-jennings-seeks-consumer-protections-in-character-ai-bankruptcy/).

Michigan Attorney General Dana Nessel made the core argument in a [state press release](https://www.michigan.gov/ag/news/press-releases/2026/10/15/attorney-general-nessel-seeks-consumer-protections-in-character-ai-bankruptcy): "Voluntary safety measures are not enough if they can be reversed by a business' next owner." That point matters here, because the safety features that protect teens today are a company choice, and a new owner could change them. Connecticut Attorney General William Tong put it more bluntly: "Their bankruptcy is no absolution."

The size of the coalition is unclear. Reports cite 23 states, 40 attorneys general who filed a notice of interest, and a 39-state group led by New Hampshire. The count varies by outlet, so verify it against the docket before repeating a number.

Precedent points the same way. In the 23andMe bankruptcy, state attorneys general opposed the sale of consumer genetic data, and a Texas-led coalition objected to RadioShack's sale of consumer data in 2015. Those cases suggest the bankruptcy court could impose data limits here. That is my analysis, not a ruling, and no court has yet ordered conditions in this case.

## What users and parents should do now

If you or your child use Character.AI, the reporting supports a few concrete steps:

- Review what chat history and personal details you have shared with the app, and use any deletion option it provides for content you no longer want stored.
- Check whether your account is still active and whether a subscription is still billing. Reports say subscriptions remain active for now.
- Download any conversations or content you want to keep. The company says it would wind the business down if no buyer steps in.
- Parents should confirm that age and safety features are switched on. The attorneys general argue that voluntary restrictions can be reversed by a new owner, so a setting you rely on today could change.
- Treat any claim that Disney "owns" user chat histories as unverified until court filings confirm it.

## What to watch before the November 24 sale hearing

The sale calendar is short, and the dates matter.

| Date | What happens |
|---|---|
| Oct. 12, 2026 | Chapter 11 case filed in Delaware |
| Oct. 15, 2026 | State AG coalition files notice seeking data safeguards |
| Nov. 20, 2026 | Bids due |
| Nov. 23, 2026 | Auction, if needed |
| Nov. 24, 2026 | Sale hearing, subject to court approval |

Source: [MLQ](https://mlq.ai/news/characterai-files-chapter-11-with-disney-as-20-million-opening-bidder/). One report says the process could finish in late November or early December.

The first thing to watch is whether a rival bidder emerges before November 20, since Disney's $20 million is only an opening offer. Next, watch the sale documents for how user data, chat logs and training data are handled. The court's ruling on consumer-data conditions will matter most, and the state attorneys general have made it their central request.

Other questions remain open. It is unclear whether the platform shuts down if no buyer takes it on, and the status of the pending wrongful-death and state lawsuits after the filing is not settled. Character.AI's case is becoming a test of how an AI company facing youth-harm claims can exit the market, and of who gets to decide what happens to the conversations it collected.

## Frequently asked questions

### Is Character.AI shutting down?

The company filed for Chapter 11 on October 12, 2026, and the platform keeps running during the case, according to reports. The company says that if no buyer agrees to run the service, it would wind the business down. Bids are due November 20, with a sale hearing set for November 24, subject to court approval.

### What happens to Character.AI chat data?

Forbes reported on October 19 that Disney's proposed license excludes user data and conversations, but the final sale terms are not public. State attorneys general have asked the court to set consumer-data protections for any sale. Until court filings confirm the terms, claims about who owns chat histories should be treated as unverified.

### How much is Disney offering for Character.AI?

Disney offered $20 million as the stalking-horse bidder for a non-exclusive, perpetual license to certain intellectual property and company claims. It is an opening bid, and other buyers can top it. Disney also agreed to provide transition support through former Character.AI employees.

### Which states are part of the attorneys general notice in the Character.AI case?

Michigan, Connecticut, Delaware, Massachusetts and Washington are among the states that filed a notice on October 15. Reports disagree on the total, citing 23 states, 39 states and 40 attorneys general. The docket is the best place to confirm the exact count.

## Sources

1. [Character.AI files for bankruptcy, will sell some assets to Disney for $20 million](https://www.cbsnews.com/news/character-ai-files-bankruptcy-disney-license/)
2. [Disney seeks to buy Character AI assets in Chapter 11 bankruptcy](https://finance.yahoo.com/technology/ai/articles/disney-seeks-buy-character-ai-041300121.html)
3. [Disney Offers $20M For Character.AI Assets As Startup Files For Chapter 11 Bankruptcy Protection](https://deadline.com/2026/10/disney-character-ai-chapter-11-bankruptcy-1237155582/)
4. [Disney Circles Character.ai as Chatbot Company Files For Chapter 11 Bankruptcy](https://www.hollywoodreporter.com/business/digital/disney-may-buy-character-ai-chatbot-chapter-11-bankruptcy-1236728629/)
5. [Attorney General Nessel Seeks Consumer Protections in Character.AI Bankruptcy](https://www.michigan.gov/ag/news/press-releases/2026/10/15/attorney-general-nessel-seeks-consumer-protections-in-character-ai-bankruptcy)
6. [Attorney General Tong Seeks Consumer Protections for CharacterAI in Bankruptcy Filing](https://portal.ct.gov/ag/press-releases/2026-press-releases/attorney-general-tong-seeks-consumer-protections-in-characterai-bankruptcy)
7. [AG Jennings seeks consumer protections in Character.AI bankruptcy](https://news.delaware.gov/2026/10/15/ag-jennings-seeks-consumer-protections-in-character-ai-bankruptcy/)
8. [Character.AI files Chapter 11 with Disney as $20 million opening bidder](https://mlq.ai/news/characterai-files-chapter-11-with-disney-as-20-million-opening-bidder/)
9. [Disney Hired Bankrupt Character.ai Engineers, Not Its Characters](https://www.forbes.com/sites/maureenkerr/2026/10/19/disney-hired-bankrupt-characterai-engineers-not-its-characters/)
10. [Character.AI Bankruptcy Puts Intimate Chats of 21M Users on Auction Block, 40 AGs Warn](https://www.techtimes.com/articles/329052/20261015/characterai-bankruptcy-puts-intimate-chats-21m-users-auction-block-40-ags-warn.htm)