Disney Bids on Character.ai Assets as Chatbot Provider Files for Chapter 11 Bankruptcy

Disney poached the CEO of Character.ai last month for a new chief technology officer role — and now, a month later, many of the company’s assets may follow

Character.ai, the controversial chatbot company known for letting its users generate and engage with a suite of original and user-generated characters, filed for Chapter 11 bankruptcy on Monday to begin a “value-maximizing sale” of potentially all of its assets. As part of the filing, Disney Worldwide Services, a House of Mouse subsidiary, has agreed to pay $20 million to become the stalking horse bidder for a “non-exclusive perpetual license of certain Company intellectual property and certain Company claims.”

The agreement will also see the former Character.ai employees poached by Disney as part of its hiring of Karandeep Anand, the chatbot provider’s former CEO, provide transition services “for a limited time” to keep the platform operational as it goes through the sale process. Character.ai expects to complete the auction process by late November or early December.

“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” Colin Adams, Character.ai’s CEO, said in a statement. “After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders. As we navigate this process, maintaining a safe and engaging user experience for our Character.ai community remains a top priority.”

Founded in 2021, Character.ai emerged in the AI space as a way for users to engage with chatbots based on fictional characters, though it sparked controversy over hosting characters based on unlicensed intellectual property and for allegedly leading users toward self-harm or impersonating medical professionals. While Character.ai has said its user-generated characters are fictional and intended for entertainment purposes, the company in January settled multiple lawsuits alleging mental health issues after years of litigation.

Most recently, the company introduced a suite of microdramas featuring characters native to the platform.

Disney’s interest in the Character.ai assets reflects the company’s embrace of AI technology in recent years, following last year’s short-lived deal with OpenAI to license characters for its Sora generator and its selection of several AI companies for its 2026 “Accelerator” program, which sees it provide company resources to a suite of startups to develop entertainment experiences.