Character.AI, a chatbot platform, has filed for bankruptcy in the US and agreed to sell some of its assets to Walt Disney for $20 million. The company has faced significant legal challenges, including lawsuits alleging that its chatbots encouraged harmful behavior, such as self-harm and suicide. Earlier this year, Character.AI settled a lawsuit with the mother of a 14-year-old boy who tragically took his own life after interacting with one of its chatbots. Additionally, states like Kentucky and Pennsylvania have filed lawsuits against the company, claiming its chatbots posed as medical professionals and promoted dangerous actions.
Under the bankruptcy proposal, Disney will act as a 'stalking-horse' bidder, offering a non-exclusive perpetual license to some of Character.AI's intellectual property. Other bidders can submit higher offers. The sale of all assets is expected to close by late November or early December. Character Technologies, the US-based owner of Character.AI, reported estimated assets and liabilities between $50 million and $100 million in a court filing.
Disney plans to assist in the transition by employing staff previously hired from Character.AI. The platform's services will continue during this period but will be shut down if no buyer is found. Character.AI was founded in 2021 by two former Google employees. In 2024, Google licensed its technology and rehired the founders. The company had previously attracted interest from Meta and Elon Musk's xAI, with reports of potential partnerships. In September 2025, Disney sent a cease-and-desist letter to Character.AI, demanding it stop using Disney's copyrighted characters without permission, which the company said it had already addressed.