Chatbot startup Character.AI filed for Chapter 11 bankruptcy in the US and agreed to sell some assets to Disney for $20 million, including a perpetual, non-exclusive technology license. The company plans to keep operating while the sale is completed, with closing targeted for early December 2026.
The company blames lawsuits over harm to children, regulatory pressure and operational problems; one case involved a teenager who took his own life. If no buyer emerges, the service would shut down. Former Character.AI staff who joined Disney last month, including ex-CEO Karandeep Anand, are to help manage the transition.
The filing marks a steep fall for a company that was part of a $2.7 billion Google deal in 2024. It shows how legal liability around companion chatbots can overwhelm even a heavily funded AI startup.