Character Technologies, Inc., the company behind the Character.AI chatbot platform, filed for Chapter 11 bankruptcy in Delaware on Monday, Oct. 12. The company says it is seeking a court-supervised sale process, which per TechCrunch and Reuters would sell some of its assets. Disney is the stalking-horse bidder, meaning the opening bid: $20 million for a deal covering certain technology and intellectual property, certain claims and a non-exclusive perpetual license, plus transition services. PPC Land reads the arrangement as a license rather than a purchase of the company. The company says the platform keeps running for now and will be wound down if no bid keeps it going.
What was filed
The voluntary petition was filed with the U.S. Bankruptcy Court for the District of Delaware under case number 26-11603. The debtor is listed as Character Technologies, Inc., which also uses the name Character.AI, with its principal place of business in Redwood City, California.
Chief Executive Colin M. Adams signed the petition on Oct. 12. The filing is under Chapter 11 of the Bankruptcy Code, the chapter used when a company reorganizes or sells its business under court supervision rather than simply closing down.
A written consent attached to the petition says the board created a restructuring committee on Oct. 8, four days before the filing, to weigh strategic and financial alternatives, citing the company’s cash flow, liquidity, general financial condition and contingent liabilities. The consent lists Christopher Sontchi, Rick Marini and Stan Chudnovsky as the three members of that committee, acting on Oct. 12.
The same consent retains Wilson Sonsini Goodrich & Rosati as restructuring counsel, Young Conaway Stargatt & Taylor as conflicts counsel, Houlihan Lokey as investment banker and Areté Partners as financial and restructuring advisor. It also retains Stretto, the firm that handles creditor claims and notices in the case, as claims and noticing agent. All of those retentions are subject to bankruptcy court approval.
Reuters, citing a court filing, reported that the company estimated its assets and liabilities each at between $50 million and $100 million. TechCrunch gave the same range. PPC Land, describing the petition, adds a creditor count of 100 to 199.
What the sale proposes
The company says it is seeking to sell all or substantially all of its assets through a court-supervised process. According to the company’s Oct. 12 press release, Disney Worldwide Services, Inc., a Disney affiliate, is the stalking-horse bidder; TechCrunch and Bloomberg Law refer to it as Disney. A stalking-horse bidder is the first bidder, whose offer sets a floor that other bidders can try to beat.
Under that offer, Disney would pay $20 million for a non-exclusive, perpetual license to certain company technology and intellectual property and certain company claims, as the company describes it. Non-exclusive means the license would not stop anyone else from getting a similar one, and perpetual means it has no end date. The company’s release describes both the technology and the claims as covered by the license. Under the company’s statement, Disney would also provide transition services to Character.AI, using former Character.AI employees who joined Disney. PPC Land reads the license as not including the platform itself. The sources do not say which other assets are part of the sale, or what a rival bidder would be bidding for.
The offer is subject to higher or better offers under section 363 of the Bankruptcy Code, which governs sales of a bankrupt company’s assets. The company has filed a motion asking the court to approve bidding procedures, the rules for how other bidders can compete, and it expects the sale to close in late November or early December 2026. The sale is not complete, and any sale needs court approval.
Adams said in a statement, as relayed by Reuters and TechCrunch, that the board concluded a court-supervised sale offers the best opportunity to maximize value for stakeholders. The company says it hopes for a proposal that lets the platform keep operating. TechCrunch, relaying Adams, reported that as of its article, posted at 8:23 a.m. EDT Tuesday, there was not yet a bid for the platform’s assets or a buyer that would keep the platform running.
What happens to the app and its users
The company says Character.AI remains available. Its blog post, dated Oct. 12, says paid subscriptions stay active and billing is unchanged for now, with advance notice if paid features change. It says user information remains protected under the privacy policy, that data practices are unchanged, and that users can delete their accounts or export their data in the app or on the website.
In its press release, the company said it expects minimal disruption to service during the sale. It said that if the court approves its first-day requests, which are urgent requests to the court at the start of the case, it could keep paying wages and benefits, honor commitments to platform users, and pay vendors and partners for obligations after the filing.
The next three paragraphs rest on PPC Land’s account of the company’s first-day papers, and the figures are from that single outlet alone. PPC Land reports that the company asked to pay critical vendors, suppliers the company asks the court to let it keep paying because it says it needs them, up to $2.5 million, with $1.5 million of that on an interim basis, meaning provisional approval pending a later hearing. PPC Land says the interim amount covers the first 30 days.
PPC Land also reports that the company told the court it does not believe current and past users are creditors, and that it would notify them through the claims agent’s site and the company blog, because serving about 163 million current and past users by email would be cost-prohibitive. No court has ruled on that position.
PPC Land notes that another paragraph in the papers refers to tens of millions of users. The site tech-insider.org said the larger number appears to count cumulative registered accounts, which would not be the same as the number of people who use the app today; PPC Land says the papers do not themselves settle that question. The petition’s list of the 20 largest unsecured claims includes one litigation claim from a redacted minor plaintiff; the petition does not say how that claim bears on the company’s position about users.
Who is owed what
The petition includes the debtor’s list of its 20 largest unsecured creditors who are not insiders, meaning not company officers, directors or other close insiders. Unsecured creditors are those owed money that is not backed by collateral. The amounts are the company’s own figures, and the petition does not say how money from a sale would be divided among creditors.
The largest of the listed amounts is a trade payable of $4,148,944 owed to Google LLC. The next are Hogan Lovells US LLP for professional services at $2,125,026 and DigitalOcean at $1,953,100. Fireworks.Ai is listed at $813,900 and Apple Distribution International at $384,683. Fireworks.Ai and Zayo Group are marked disputed on the form.
Late Checkout, LLC follows at $212,025. Four more law firms appear: White & Case, Munger, Tolles & Olson, Skadden, Arps and Quinn Emanuel, with claims ranging from about $64,000 to $189,000. Other trade payables include Zayo Group at $119,210 and DoorDash at $89,996, with five more between $42,000 and $80,000. The 17 listed amounts total about $10.69 million, which can be set against the $20 million Disney bid only with care, because the list covers 20 claims and three carry no amount.
The last three entries are litigation claims, each marked contingent (dependent on an outcome), unliquidated (no amount fixed) and disputed, with no amount given. They are the Commonwealth of Pennsylvania, the Commonwealth of Kentucky and a minor plaintiff whose name is redacted. The petition gives no description of the Pennsylvania claim. Reuters reports that Pennsylvania alleges the company’s chatbots posed as doctors, and TechCrunch’s topic page lists a May 5, 2026 item on Pennsylvania suing the company.
Background
Character.AI was founded in 2021 by Noam Shazeer and Daniel De Freitas, both former Google engineers, according to TechCrunch. The company announced a $150 million Series A led by Andreessen Horowitz, at a $1 billion valuation, in a Business Wire release dated March 23, 2023; Sacra and Biggo agree on March 2023. TechCrunch’s text instead says the company reached unicorn valuation with a $150 million raise by September 2022, which differs from the company’s release. TechCrunch cites PitchBook data showing more than $193 million raised in total.
In August 2024, Google struck a $2.7 billion deal to license the company’s models, which TechCrunch calls a license and Gigazine calls non-exclusive, and Shazeer and De Freitas returned to Google. General counsel Dominic Perella became interim CEO. TechCrunch says the company then moved away from training foundation models to focus on growth. Google is also the largest creditor on the petition’s list.
The company faced legal and regulatory pressure from late 2024 on. A Florida mother sued after her 14-year-old son died by suicide; Google was a co-defendant. In May 2025 a federal judge in Florida allowed the case to proceed, per AP, and Google said it strongly disagrees with the claims against it. JURIST reported that the case was dismissed after the parties agreed to settle on Jan. 7, 2026, with terms undisclosed and a 90-day window to finalize the settlement or, for good cause, reopen the case. JURIST and others reported that agreements to settle similar suits in Colorado, Texas and New York had also been reached, with terms undisclosed; AP reported that the other agreements still needed approval by judges, and Gigazine described them as subject to final determination. Whether they were finalized is not reported as of Oct. 13.
Texas opened an attorney general investigation in December 2024, which TechCrunch places soon after the Florida suit. In September 2025 the Federal Trade Commission sent study orders to seven companies, including Character Technologies, Alphabet, Meta and OpenAI. The FTC described it as a study without a specific enforcement purpose, asking about topics such as how companies monetize engagement, test products, limit harm, apply age restrictions and use or share personal information from conversations.
Kentucky Attorney General Russell Coleman sued the company on Jan. 8, 2026 in Franklin Circuit Court, per Kentucky Lantern and WBKO; The Record’s Jan. 12 date is a later report of the same suit, and AIM’s Oct. 8 date is an outlier. The petition lists the Commonwealth of Kentucky as a litigation claim.
The company said it would end open-ended chat for users under 18 by Nov. 25, 2025, using age assurance tools. Separately, Engadget reported on Sept. 30, 2025 that Disney sent the company a cease-and-desist letter alleging copyright infringement by chatbots based on Pixar, Star Wars and Marvel properties; Character.AI said the characters were removed.
Adams’s statement pointed to significant legal, regulatory and operational headwinds, and TechCrunch’s coverage describes lawsuits and difficulty scaling. Nothing in the coverage or the petition says that any single lawsuit, regulator or Disney’s letter caused the filing.
According to TechCrunch, Karandeep Singh Anand, a former Brex and Meta executive who had become Character.AI CEO in 2025, joined Disney last month, as did other former employees. Colin Adams now leads the company.
What is not known
As of about 9 a.m. EDT Tuesday, Oct. 13, the petition did not give a presiding judge or hearing dates. PPC Land, reporting from the court docket, later reported that the case is before Judge Brendan L. Shannon, that the first-day hearing is set for Oct. 14 at 1:30 p.m. ET, and that the proposed bidding schedule has bids due Nov. 20, an auction on Nov. 23 and a sale hearing on Nov. 24. Plainly Now had not read the bidding-procedures motion or the first-day declaration themselves. Whether other bidders exist for the license is not reported.
The petition does not say what happens to user data in a sale, and no coverage says whether the Disney license includes it. Coverage does not say whether paid subscribers’ credits would be honored, how pending lawsuits are treated, or whether the company has arranged bankruptcy financing. No revenue or cash figure appears in the company’s Oct. 12 announcement; third-party estimates exist from Sacra and are unverified. No statement from Disney or Google appeared in coverage as of that time.
What comes next
The court will need to approve the bidding procedures, after which other parties may bid against Disney. The company has said it expects a sale to close in late November or early December, if the court approves one. It says it expects to keep operating during the sale process, and that the platform will be wound down if no transaction provides for continued operations. Stretto, as proposed claims agent, has set up a case website and an information line for questions, and no claims deadline has been reported as of 9 a.m. EDT Oct. 13.