Character.AI's sale motion sets out Disney's $20m bid, and the app and user data are not in it

Character.AI's bidding-procedures motion, filed in the US Bankruptcy Court for the District of Delaware on Tuesday 13 October 2026, sets out the terms of Disney's opening bid. The filing says Disney "will pay $20 million in cash" for a licence to some of the company's technology, and that the deal does not include the Character.AI app or its users' data.

When we reported the Chapter 11 filing on 14 October, we said we could not read the Disney agreement. We have now read the motion (Doc 15, case 26-11603), a 295-page filing that attaches the Disney agreement and the September term sheet.

The money

• Price: the motion says Disney "will pay $20 million in cash", "$7.5 million of which was paid prepetition pursuant to the EPA (including a $2 million refundable good-faith deposit)". The EPA is an exclusivity and prepayment agreement that Character.AI signed with Disney on Friday 18 September.
• Bid protections: if another bidder wins, the company would pay Disney "a break-up fee and reasonable expense reimbursement collectively capped at 3.5% of the Stalking Horse Purchase Price, or $700,000". That $700,000 is a single cap covering the fee and expenses together, not a fee with expenses on top.
• Overbids: a rival bid for the same assets must at least match Disney's $20 million plus the break-up fee plus $1,000,000, the motion's "Minimum Overbid Amount".
• Outside date: the motion says that unless both sides agree otherwise, closing must happen no later than 17 December 2026, and Disney can terminate if it has not, unless the delay is caused by its own breach.

What Disney is buying, and what it is not

Disney's $20 million buys a "perpetual, worldwide, non-exclusive" licence to some of Character.AI's technology and patents, plus any unreleased legal claims the company has against former staff who joined Disney. The motion says the company "does not believe there is any value to such claims".

The agreement lists what the licence does not include. It excludes "any consumer-facing applications" and the company's "end user data or databases, any personally identifiable information" of its users, "any input entered by Licensor end users", and outputs generated for users. It also excludes "training data or any Finished Models, including each user-selectable conversational model or chat style".

The motion says: "If such offers are unavailable, or if the transaction with Disney is not approved, Character's platform will be wound down." On our reading, "such offers" refers to the higher or better offers the company plans to seek, so a sale to Disney alone would not keep the app running.

The staff

Under the September agreement, the motion says, Disney "agreed to hire the majority of its workforce, including the Debtor's chief executive officer, up front". It adds: "The vast majority of the Debtor's employees offered roles at Disney accepted their offers." Under a transition services agreement, they keep helping run the business, the sale process and its wind down for up to five months from 18 September.

The term sheet attached to that September agreement says Disney would offer jobs to "at least sixty (60)" employees as well as up to six key employees. It says that, "Based on a preliminary review of approximately 65 Offered Employees", Disney estimated their annual run-rate total compensation at "approximately US$60 million", and that Disney would provide a US$30 million retention pool. It puts total pay and retention over years one to three at "approximately US$ 180 million". These are September estimates and commitments, not amounts paid.

If Disney does not win, it must let the winner interview and make offers to those former Character.AI staff who wish to consider the move, "provided that Disney may designate up to 20% of such employees as outside the scope of such process".

The proposed timetable

These dates are proposed in the motion. We could not confirm whether the court has approved them. The Stretto docket requires a reCAPTCHA we cannot pass, and the free CourtListener docket we could read ran only to Thursday 15 October and showed no order on the bidding procedures.

• Monday 9 November: deadline to name any additional stalking-horse bidders
• Friday 13 November, 4pm ET: deadline to object to the sale
• Friday 20 November, 5pm ET: bid deadline
• Monday 23 November, 10am ET: auction, if there are rival bids
• Tuesday 24 November: sale hearing, "subject to Court availability"

The states have filed too

On Wednesday 14 October a coalition of state attorneys general filed a notice of interest and reservation of rights, docketed as related to the motion. They say Character.AI holds sensitive data on millions of users, citing the company's own records for "more than 2.1 million accounts with a declared age under 18" in the US by March 2025. They ask that any buyer keep protections for minors and give users "the opportunity to delete their data prior to any sale of that data". They reserve the right to seek a consumer privacy ombudsman and "to object to any proposed sale, bidding procedures, or plan".

Why it matters

The filing answers the question our first report left open. According to the motion, Disney's bid pays for a non-exclusive technology licence, and Disney agreed to hire the majority of the company's workforce, most of whom accepted. The agreement excludes the app, the finished chat models users pick from, and users' data and chats. On our reading, the app's future now depends on whether anyone else bids by the proposed 20 November deadline. The company's own filing says the platform will be wound down if such offers are unavailable.