Character.AI Files Chapter 11 as Disney Bids $20 Million for IP License

Disney’s $20 million was already attached when Colin M. Adams signed. On October 12, 2026, the chief executive of Character Technologies—the company behind Character.AI—put his name on a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of Delaware, beside attorney Erin R. Fay of Wilson Sonsini Goodrich & Rosati. The case took number 26-11603. Chapter 11 is the part of the federal bankruptcy code that lets a business keep operating under court supervision while it reorganizes or sells. The money from Disney Worldwide Services, Inc. was not a purchase of the firm and not a takeover of the chatbot. It was the price of a non-exclusive perpetual license of certain company intellectual property and certain company claims.

The form listed the principal place of business at 2114 Broadway, Redwood City, California. Court-filing language said the process was meant to facilitate a value-maximizing sale of all or substantially all. Four days earlier the board had formed the committee that authorized the filing. Its members were Christopher Sontchi, Rick Marini and Stan Chudnovsky. The board charged them to consider, evaluate and review possible strategic and financial alternatives in light of the company’s cash flow, liquidity, general financial condition and contingent liabilities. On October 12 the three signed a unanimous written consent authorizing the petition.

The same resolution retained Wilson Sonsini as restructuring counsel, Young Conaway Stargatt & Taylor as conflicts counsel, Houlihan Lokey as investment banker, Areté Partners as financial and restructuring adviser, and Stretto as claims and noticing agent. On the form Character Technologies estimated assets between $50 million and $100 million, and liabilities in the same band. It listed between 100 and 199 creditors. It gave itself NAICS code 5415, computer systems design and related services. And it checked the box stating that funds will be available for distribution to unsecured creditors.

“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 said. “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.”

Before any of those papers reached the Delaware clerk, the company had already locked in the bidder who would set the auction floor. Disney Worldwide Services, Inc. had signed under a pre-filing agreement. Character.AI said Disney “will serve as stalking horse bidder for a non-exclusive perpetual license of certain Company intellectual property and certain Company claims, in exchange for $20 million and Disney's provision of transition services using former Company employees it has hired.” A stalking-horse bid establishes the opening terms of a court-supervised auction so other parties know the minimum they must clear. The language left room for higher or better offers. The license would stay non-exclusive, leaving the technology open beyond a single holder. Transition services came bundled with the money: Disney would supply them through people it had already hired from Character.AI, former company employees now carried on Disney’s own payroll. Those staff moves had been completed only weeks earlier.

In September 2026 Disney named Karandeep Anand its first group-wide chief technology officer. Anand had been chief executive of Character.AI. He would report directly to Disney chief executive Josh D’Amaro and bring several of Character.AI’s technical staff with him. The hire landed months after a concrete legal break. In January 2026 Character.AI settled the Setzer lawsuit and related litigation.

Character.AI had been founded in 2021 by Noam Shazeer and Daniel de Freitas, engineers who left work on Google’s LaMDA system to build a generative chatbot service of user-created characters; a public beta opened the next year. The service those employees had shaped let users create characters, set personalities, and hold conversations with them. After the 2022 public beta, mobile apps for iOS and Android arrived in May 2023 and drew more than 1.7 million downloads in a week. Safety limits followed. In July 2026 the company launched c.ai Series, microdramas animated with generative AI. The first major peel of founding talent had come in 2024, when Google hired co-founder Noam Shazeer and entered a non-exclusive agreement to use Character.AI technology. Anand’s move extended that outward flow, placing former Character.AI staff on the payroll that would now deliver the transition services written into the stalking-horse bid.

Character.AI said the Disney transition help “will help the Company safely operate using its platform for a limited period of time and support its sale process.” The chats would stay live. The company planned for the platform and subscriptions to remain available with minimal disruption while bidding procedures moved. Character Technologies sought authority to keep paying its staff and its vendors as debtor in possession. Under Chapter 11 that status leaves the company itself in control of day-to-day operations, subject to the court’s oversight, rather than handing the business to an outside trustee.

“As we navigate this process, maintaining a safe and engaging user experience for our Character.ai community remains a top priority,” Colin Adams said. The temporary return of former employees now on Disney’s payroll, together with leave to meet payroll and vendor bills, made that priority concrete for the length of the auction.

Character.AI expected the sale process to conclude, and any resulting transactions to close, in late November or early December 2026. That timetable left bidders a short run to the finish. The twenty million dollars attached at filing purchased a non-exclusive perpetual license of certain intellectual property and certain claims. It did not purchase the platform. It did not bind anyone to keep Character.ai in operation once the sale process ended. Transition services covered safe operation for a limited period only, while the auction itself ran. A competing bidder could still clear the floor with an offer structured around continuation. The company held one sentence for the far side of the deadline: “To the extent the Sale Process does not result in a purchase that provides for a continuation of the Character.ai platform, the platform will be wound down.” The voluntary petition listed the mailing address as 700 El Camino Real, Menlo Park.