Character.ai has filed for Chapter 11 bankruptcy protection and launched a court-supervised sale process, while continuing to operate under an agreement that will see Disney pay $20 million for a non-exclusive, perpetual licence to its intellectual property.
The chatbot company said it expected to be sold by late November or early December. Its chief executive, Colin Adams, attributed its financial difficulties to “significant legal, regulatory and operational headwinds”.
Character.ai said its board had concluded that a court-supervised sale offered the best way to maximise value for stakeholders. Mr Adams said maintaining a “safe and engaging user experience” remained a priority during the process.
Character.ai services to continue
The company said its services would continue operating and that subscriptions remained active. It added that subscribers would be notified in advance if any changes affected paid features.
Character.ai’s financial problems follow scrutiny of its technology, which allows users to create customised chatbots for conversations. The company and Google, which had a licensing agreement with Character.ai, agreed earlier in 2026 to settle several lawsuits brought by families who said their teenage children had died by suicide or harmed themselves after using the platform.
Several US states have also taken legal action against the company. Kentucky Attorney General Russell Coleman alleged in January that its chatbots “preyed on children and led them into self-harm”.
Pennsylvania sued Character.ai in May after one of its chatbots allegedly claimed to be a licensed psychiatrist in the state and provided a “fake Pennsylvania license number”. The claims have not been established in court.
In a separate development, Disney has agreed to pay $20 million for a non-exclusive, perpetual licence to Character.ai’s intellectual property. The agreement forms part of the company’s efforts to sell its business while it remains under bankruptcy protection.
Character.ai said customer data would continue to be protected under its privacy policy. However, the policy says information including chat transcripts, voice recordings, images and videos may be disclosed as part of a sale or negotiations to sell the company or its assets.
Users can delete their accounts or export their data through the Character.ai app or website, the company said.
