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Character.AI, a startup known for creating online chatbots, has filed for Chapter 11 bankruptcy protection in the United States to facilitate the sale of its assets. The company stated that over the past year, it faced significant legal, regulatory, and operational challenges while continuing to release updates. In its filing, Character listed estimated liabilities between $50 million and $100 million.

Disney has been identified as the lead bidder for these assets. Under the proposed deal, Disney would pay $20 million for certain undisclosed assets and provide transition support using former employees it has hired. The company would also receive a nonexclusive license to unspecified intellectual property. This move follows Disney hiring Character’s former CEO, Karandeep Anand, as its chief technology officer.

Disney previously complained that Character was damaging its brand by allowing unauthorized chatbots of its characters. Along with Anand, Disney expects a number of Character’s technical team members to join the company. This strategy resembles an "acquihire," where a larger company hires a startup’s talent to gain expertise. Character.AI has survived a similar situation once when Google spent over $2 billion to hire away much of its talent in 2024.

Character expects the sale process to be completed by late November or early December and plans to continue operating its services, including paid subscriptions, in the meantime. However, the company warned that the platform will be wound down if a suitable bid does not emerge. It emphasized that maintaining a safe and engaging experience for its community remains a top priority during this transition.