Chatbot startup Character.AI has filed for Chapter 11 bankruptcy in the US — a legal process that lets a company reorganize or sell off assets under creditor protection — to facilitate a sale of the company, according to The Verge and Engadget.
The Verge and Engadget describe Character.AI as a service where users chat or role-play with chatbot characters built by other users or by the platform itself. That is the kind of product — built for AI conversation and role-play, not productivity tasks — now up for auction under US bankruptcy supervision.
Both outlets report that Disney has been accepted as the "stalking horse" bidder — the term used in bankruptcy proceedings for the lead bid that sets a baseline for the sale. Disney offered $20 million for unspecified assets, according to The Verge and Engadget, and that figure could rise if other bidders come in with higher offers.
Both outlets report that Character.AI listed estimated liabilities of between $50 million and $100 million in the filing. The Verge and Engadget also report that, as part of the deal, Disney would provide transition support using staff it had previously hired away from Character.AI itself.
The stalking-horse role exists because, in Chapter 11, a struggling company's assets are typically sold through a court-supervised auction rather than negotiated privately with a single buyer. Having a public opening bid, like Disney's, gives creditors a price floor and a window to attract better offers before a court approves the winner — which The Verge and Engadget both say is expected between late November and early December.
Both outlets say the company plans to keep its services running, including paid subscriptions, while the sale is pending. The Verge and Engadget each confirm, in their own words, that the platform could be shut down if no suitable buyer is found by then.
From cease-and-desist letters to a hiring deal
Disney had previously sent Character.AI cease-and-desist letters over unauthorized chatbots built on its characters, arguing they damaged its brand, The Verge and Engadget report. Despite that history, Disney recently hired Character.AI's own former chief executive, Karandeep Anand, as its chief technology officer, both outlets say.
It isn't the first time Character.AI has lost a major chunk of its workforce: The Verge and Engadget report that Google spent more than $2 billion in 2024 to hire away much of the company's talent, including co-founders Noam Shazeer and Daniel De Freitas.
Years of legal scrutiny over chatbot safety
The Verge and Engadget both report that Character.AI has faced lawsuits and investigations from US authorities over the safety of its chatbots in recent years, even as the app's user base grew.
The picture both outlets paint helps explain the Chapter 11 filing: the same company that lost co-founders to Google in 2024, drew formal cease-and-desist notices from Disney over unauthorized use of its characters, and faced lawsuits and investigations over its own chatbots' safety is now the one listing liabilities of up to $100 million and accepting its former corporate rival as the buyer of its assets.
Both outlets frame the Disney deal as closing a loop that started with conflict: a company Disney once accused of damaging its brand is now handing Disney the opening bid for what remains of it, with some of Disney's own hires from Character.AI helping run the handover.
Neither The Verge nor Engadget reports that Character.AI's founders remain involved in the company today. Both outlets instead trace the talent that built Character.AI to Google, which hired away Shazeer and De Freitas in 2024, and now to Disney, which has pulled in both Anand and part of the technical staff ahead of the asset sale.
