Character.AI files for bankruptcy, sells assets to Disney for $20 million

Character.AI, the chatbot app where users talk to custom AI characters, has filed for Chapter 11 bankruptcy in the US and agreed to sell some of its assets to Disney for $20 million, about Rs 5.5 billion, TechCrunch and Variety reported on Tuesday, 13 October 2026. The app keeps running for now, but its chief executive says it will be shut down if no buyer comes forward for the whole business.

What was filed

• Chapter 11 with a court-supervised sale process.
• The company listed assets and liabilities of between $50 million and $100 million in its court papers.
• Disney has agreed to buy some assets for $20 million and gets a non-exclusive, perpetual licence to Character.AI's technology. Former Character.AI staff who joined Disney last month, along with former CEO Karandeep Singh Anand, will help with the handover.
• The sale is expected to close in late November or early December.

CEO Colin Adams said there is no bid yet for the company as a whole. He said the board chose the court process as "the best opportunity" and hopes it brings "an actionable proposal that will allow continued operations"; otherwise, "the platform will be wound down."

Why a hit app ran out of road

Character.AI was founded in late 2021 by former Google engineers Noam Shazeer, a co-author of the Transformer paper behind today's AI models, and Daniel De Freitas. It became a unicorn in 2022 after a $150 million round and had 20 million monthly users by October 2024.

The problems built up from there, according to TechCrunch:

• Lawsuits and investigations over harm to young users, including a Texas probe into child safety and privacy that began in December 2024. The company settled some cases, added safety features and banned minors.
• Costs: the more people chat, the more the AI costs to run, which pushed the company to earn money from users faster than it could.
• The Google deal: in August 2024 Google paid $2.7 billion to license its models and took both founders back, and Character.AI stopped training its own foundation models.

It raised more than $193 million from investors including a16z, Lightspeed and Greycroft, according to PitchBook data cited by TechCrunch.

What it means for users in Pakistan

Nothing changes today: the app stays online during the sale. If you have characters or chats you care about, keep your own copy now rather than waiting, because a shutdown would follow quickly if no buyer appears. If you paid for a subscription in dollars, check your card statement for the conversion and bank charges, and our cash withdrawal tax calculator and currency converter show what dollar payments cost here.

More on AI companies and models is on our AI desk, including Meta's new Muse Wonder model this week.