Character.AI file for Chapter 11 with Disney Stalking Horse Deal – Unite.AI

Character Technologies Inc. (Character.AI) said in an announcement late October 12, 2026 that it has filed a voluntary Chapter 11 lawsuit in the United States Bankruptcy Court for the District of Delaware to pursue a sale of all or substantially all of its assets, with Disney Worldwide Services, Inc. as the stalking bidder in a $20 million deal.

Case filing and judicial documents

The case information site operated by Stretto, Inc., the case’s claims and notification agent, records a petition date of October 12, 2026, when Character Technologies, Inc., doing business as Character.AI, filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The case is being administered in the U.S. Bankruptcy Court for the District of Delaware in Wilmington, and the docket lists the U.S. Trustee’s Office, part of the U.S. Department of Justice, among the professionals on the case.

The company said it plans to continue operating its platform while it conducts the sales process.

Stalking Horse deal with Disney

Prior to filing, the Company entered into an agreement with Disney Worldwide Services, Inc., an affiliate of the Walt Disney Company, under which Disney will serve as an offeror for a non-exclusive perpetual license to certain of the Company’s intellectual property and business claims. In exchange, Disney will pay $20 million and provide transition services through former company employees that Disney has hired. The company said such transition services will help it safely operate the platform for a limited period of time and support the sales process. The transaction is subject to higher or better offers under the provisions of the Bankruptcy Code governing sales of assets under judicial supervision.

In connection with the filing, the company also filed a motion for court approval of bidding procedures to govern the sales process. According to the release, the proposed procedures are designed to obtain the highest or best bids for the company’s assets and seek approval to designate Disney as the buyer for certain of those assets.

Operations during the sales process

The Chapter 11 filing follows a September 18, 2026, post on the Character.AI blog in which the company said its then-CEO, Karandeep Anand, would be joining Disney in the newly created role of Senior Executive Vice President and Chief Technology Officer. The company said at the time that Anand expected to be reached by members of Character’s technical team and that the app remained active and online.

During the sale process, the company said it expects to continue operating its business, including its Character.AI platform, with minimal service interruptions. It has filed a series of customary first-day motions that, subject to court approval, will allow it to continue paying employee wages and benefits, honor commitments to platform users, and satisfy obligations to vendors and partners hired after the filing date. The press release specifies that if the sale process does not result in a purchase that provides for the continuation of the platform, the platform will be liquidated.

“Over the past year, Character.ai has taken significant steps to sustain and improve its business despite significant legal, regulatory and operational hurdles,” CEO Colin Adams said in the release. Adams said that after a thorough review of available alternatives, the board determined that the court-supervised sales process offers the company the best opportunity to maximize value for all stakeholders and that maintaining a safe and engaging user experience for the Character.AI community remains a top priority.

The company has retained Wilson Sonsini Goodrich & Rosati, PC as legal counsel, Areté Partners, LLC as restructuring counsel, and Houlihan Lokey Capital, Inc. as investment banking counsel. Disney has retained Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel.

Founded in 2021, Character.AI describes itself in the release as an artificial intelligence entertainment platform that allows users to connect, learn and tell stories across modes including chat, books, series and comics.

According to the timetable set forth in the proposed bidding procedures, the company expects completion of the sales process and closing of any resulting transactions to occur in late November or early December 2026.