Character.AI Files for Bankruptcy as Disney Bids $20 Million—And Users Get Grief Resources

Character.AI, the app where millions of people spend hours chatting with AI versions of fictional heroes and made-up partners, has filed for bankruptcy. The company >announced Monday that it started a voluntary Chapter 11 process, a type of U.S. bankruptcy that lets a company keep operating while a judge supervises how its debts get paid or how its assets get sold. The case was filed in the U.S. Bankruptcy Court for the District of Delaware. Character.AI isn't trying to restructure its way back to health. It wants a court-supervised sale of all or substantially all of its assets, and if no bidder agrees to keep the service alive, the company said the platform "will be wound down"—corporate speak for switched off. Disney Worldwide Services, a unit of the Walt Disney Company, signed on before the filing as the "stalking horse" bidder, according to Character.AI's >press release. In a bankruptcy auction, that is the opening offer that sets a floor every other buyer has to beat. The media giant is offering $20 million for a non-exclusive, perpetual license to some of Character.AI's intellectual property and certain legal claims, plus transition services run by former Character.AI employees it has already hired. Non-exclusive means Disney gets to use that tech forever, but so can whoever else ends up buying it, and other bidders can still top the offer. The company expects the sale to close in late November or early December. Character Technologies Inc., the company's legal name, estimated both its assets and its liabilities at $50 million to $100 million in its >bankruptcy petition. Three and a half years ago, Andreessen Horowitz led a $150 million funding round that valued Character.AI at $1 billion, with a16z partner Sarah Wang tweeting that "we are at the iPhone moment of AI." Founded in 2021 by former Google engineers Noam Shazeer and Daniel De Freitas, the app lets anyone build a chatbot with a personality and share it with others. Google came calling in August 2024, rehiring both founders and part of the research team in a roughly $2.7 billion deal that also licensed Character.AI's technology. Silicon Valley calls this kind of arrangement an acqui-hire, buying the talent without technically buying the company, and Character.AI later largely abandoned buil