Character.AI files for Chapter 11 to sell itself, and the app stays up for now

Character.AI, the chatbot platform where people chat with AI characters, has filed for Chapter 11 bankruptcy in the US. In a blog post dated 12 October 2026, the company says it has "initiated a voluntary Chapter 11 bankruptcy process to facilitate a court-supervised sale of the company", and that the platform "remains up and running" for now.

What the company says

Character.AI's post gives its reasons and its plan:

• Why: it says it has spent the past year trying to improve the business "amid significant legal, regulatory, and operational headwinds", and that its board decided a court-supervised sale "provides us with the best opportunity to maximize value for all of our stakeholders".
• What is being sold: the FAQ says the case is "to pursue a court-supervised sale of all or substantially all of our assets".
• Timing: "We currently expect that the court-supervised sale process will be complete by the end of November or perhaps early December 2026."
• If there is no buyer: the company says it hopes the sale will "allow continued operations of the Character.ai platform". It adds: "If such a bid is unavailable, however, the platform will be wound down."

What it means for users

This section draws only on what Character.AI has said in the post.

• Access: "you can continue to access all services at this time."
• Paid subscriptions: "your subscriptions remain active, and billing is unchanged for now." If the service changes in a way that affects paid features, the company says "we intend to notify subscribers in advance".
• Data and chats: it says your information "continues to be protected under our Privacy Policy" and that its privacy and security practices "are unchanged". It reminds users they "can delete your account or export your data through the app or the Character.ai website".

The post does not say what would happen to user data if the platform were sold or wound down.

What the court filing shows

The voluntary petition, published by Character.AI's claims agent Stretto, was filed on Monday 12 October in the US Bankruptcy Court for the District of Delaware under the company's legal name, Character Technologies, Inc. Stretto's case page gives the case number as 26-11603 and the judge as Brendan Linehan Shannon. In the 12-page petition:

• The company ticks the $50,000,001–$100 million band for both estimated assets and estimated liabilities. These are bands on a standard form, not exact totals.
• It estimates 100–199 creditors, and ticks the box saying funds "will be available for distribution to unsecured creditors".
• Its list of 20 largest unsecured creditors puts Google LLC first, with a trade payable of $4,148,944. Law firm Hogan Lovells ($2,125,026) and DigitalOcean ($1,953,100) come next.
• The board set up a restructuring committee on Thursday 8 October, which approved the filing. The petition is signed by chief executive Colin M. Adams.

The Disney bid

The petition does not mention Disney. According to CNBC, Character.AI "entered into an agreement for Disney to serve as a stalking horse bidder to license some of the company's intellectual property for $20 million". CNBC also reports that the deal includes transition services "through former employees the media giant hired".

TechCrunch words the deal differently: it says the startup "agreed to sell some of its assets to Disney for $20 million, as well as a non-exclusive perpetual license for its technology". We could not read the Disney agreement or any sale motion. The full docket on Stretto sits behind a captcha, and the free copies on CourtListener did not include those papers. So we have not checked these terms against the filing itself.

CNBC quotes the filings as saying AI entertainment "has proven to be costly to develop and grow". It adds that these costs, "coupled with potential litigation related liabilities and regulatory engagement", have contributed to the company's inability "to generate sufficient cash flows to support its business in the present form".

Why it matters

CNBC calls Character.AI one of the largest AI companion apps, and the company's own post says the platform will be wound down if no bid allows it to keep running. On our reading, the main point for UK users with accounts or subscriptions is the one the company itself makes: the service and billing carry on for now, and you can export or delete your data today through the app or the website. The company currently expects the sale process to be complete by the end of November or perhaps early December.