Character.AI files for bankruptcy: what happens to the app, your chats and the Disney deal

Character.AI files for bankruptcy: late on Monday, October 12, 2026, Character Technologies Inc., the company that runs the Character.AI chatbot app, started a voluntary Chapter 11 case in the US Bankruptcy Court for the District of Delaware. It wants to sell all or most of its assets, and Disney has opened the bidding at $20 million. It's one of the best-known AI companions and character-chat apps, and its users mostly want to know three things. Is the app shutting down? Are my subscription and chats safe? Where can I go instead?

This explainer is based on Character.AI's October 12 blog post and press release, its help center, the claims agent's case page, Reuters' reporting on the filing and the first court hearing, CBS News, TechCrunch, Disney's September 18 announcement, and summaries of the court filings, checked October 16, 2026. It describes the process. It isn't legal or financial advice.

The short version

• The filing: Chapter 11, US Bankruptcy Court for the District of Delaware, filed late on October 12, 2026. The claims agent's case page lists it as case 26-11603 (BLS) before Judge Brendan Linehan Shannon, who Reuters also reports is hearing the case.
• Why: losses of about $8 million to $9 million a month from computing and staff costs, plus lawsuits and state investigations over harm to children, according to court documents cited by Reuters.
• The Disney deal: Disney is the "stalking horse," or opening, bidder. It would pay $20 million for a non-exclusive, perpetual license to some of the company's technology and IP. Anyone can bid more.
• Is Character.AI down? No. The company says the platform "remains up and running" during the sale, and paid subscriptions remain active.
• Your chats: the company says its privacy policy still applies. Its lawyer said Disney doesn't want user data. No buyer had offered for the user data or the operating app as of October 14.
• The risk: if no bidder keeps the platform going, the company says it "will be wound down."

When and where did Character.AI file for bankruptcy?

Character Technologies filed late on October 12, 2026, in Wilmington, Delaware, Reuters reported. The company's press release and blog post, both dated October 12, describe a "voluntary Chapter 11 process" to run a "court-supervised sale" of all or substantially all of its assets.

Chapter 11 is usually thought of as reorganization. Here, it's being used to sell. A Section 363 sale lets a bankrupt company sell assets under court supervision, after an auction, free of most claims against it.

The company listed estimated assets and liabilities of $50 million to $100 million each, Reuters reported. Its largest listed unsecured creditor is Google LLC, at about $4.1 million, according to the creditor list as summarized by PPC Land. The claims agent, Stretto, posts the court filings at cases.stretto.com/chartech.

The first hearing took place on Wednesday, October 14, Reuters reported. The court entered an interim cash-management order that day, according to PPC Land's summary of the docket.

Why did Character.AI go bankrupt?

CEO Colin Adams pointed to "significant legal, regulatory and operational headwinds," CBS News reported. The court papers are more specific:

• Costs. Court documents put losses at about $8 million to $9 million a month, driven by computing power and AI talent, Reuters reported. The company wasn't profitable despite roughly 12 million active users, according to Reuters.
• Lawsuits and investigations. Families sued, alleging chatbots contributed to teenagers' suicides and self-harm. Preliminary settlements were reached in five lawsuits in January 2026, but court documents indicate they hadn't been finalized or paid, Reuters reported. Kentucky alleges chatbots encouraged users to "cut, starve or kill themselves," according to Reuters. In May 2026, Pennsylvania Gov. Josh Shapiro's administration sued through the Department of State, alleging chatbots presented themselves as licensed medical professionals, including a "doctor of psychiatry," Route Fifty reported. Reuters also reported investigations by authorities in the UK, Italy, Russia and Australia.
• People leaving. Disney hired former CEO Karandeep Anand as its first chief technology officer on September 18, 2026, effective October 2, and said several of Character.AI's technical staff would join it. Character.AI's lawyer, Erin Fay, told the court employees had "lost faith in the company's trajectory," Reuters reported.

The company hopes to use the case to reach a "global resolution" of legal claims, according to Reuters. The automatic stay that pauses most lawsuits against a bankrupt company doesn't cover government police and regulatory actions.

What is Disney buying for $20 million?

Not the app. According to the company's press release, Disney Worldwide Services would get "a non-exclusive perpetual license of certain Company intellectual property and certain Company claims," and would provide transition services using former Character.AI employees it has hired. The bid is subject to "higher or better offers" under Section 363.

The stalking-horse agreement, filed with the bidding-procedures motion (docket item 15) on October 13 and summarized by PPC Land, licenses code for training, safety, serving and age prediction, plus nine patents. It excludes end-user data, user inputs and outputs, finished models, the app and platform, and the brand. "Non-exclusive" means Character.AI can license the same technology to someone else.

Reuters' account of the October 14 hearing matches: Fay said Disney isn't interested in the user data, and that no buyer had yet bid for the user data or the operating chatbot business.

Proposed sale dates. The bidding procedures still need court approval; PPC Land reports the motion asks for a hearing on them around October 26. As summarized by PPC Land, they propose a bid deadline of November 20, an auction on November 23 if there are rival bids and a sale hearing on November 24, 2026. The company's public target, in its press release, is "late November or early December." The claims agent's case page listed no sale dates as of October 16.

Didn't Google already pay $2.7 billion for Character.AI?

Not for the company. In August 2024, Google licensed Character.AI's models and rehired co-founders Noam Shazeer and Daniel De Freitas. The Wall Street Journal reported the deal was worth about $2.7 billion. Character.AI stayed independent, stopped training its own foundation models and focused on growth, TechCrunch reported. TechCrunch says it had 20 million monthly active users by October 2024.

That deal shaped this one. Much of the value went to Google and the founders in 2024. In 2026, Disney is again licensing technology and hiring staff rather than buying the company.

What's the Disney copyright dispute?

In September 2025, Disney sent Character.AI a cease-and-desist letter over chatbots based on its copyrighted characters. Straight Arrow News reports that the letter called them "harmful and dangerous to children." Character.AI said it had removed them, Reuters reported. A year later, Disney hired the company's CEO and bid for a license to its technology.

Is Character.AI down or shutting down?

Not yet. "The Character.ai platform remains up and running, and you can continue to access all services at this time," the company said in its October 12 blog post. According to its press release, first-day motions asked the court to let it keep paying staff and vendors and "honor commitments to platform users," and it expects to keep operating "with minimal disruptions to service" during the sale.

The company's own words set the risk: if the sale doesn't produce a bid that keeps the platform running, "the platform will be wound down." As of October 16, no outage or shutdown date had been announced. Court filings are posted on the claims agent's case site, and a first-day filing says notices for users will go on that site and the company blog, PPC Land reported.

What happens to my c.ai+ subscription?

The company says paid subscriptions remain active and billing is unchanged for now. "If the service changes in a way that affects paid features, we intend to notify subscribers in advance," it told CBS News. It hasn't said whether subscribers would get refunds if the platform closes.

Character.AI's help center says subscriptions started on the website are managed under Settings → Account → Manage, while subscriptions started in the iOS or Android app are managed through Apple or Google. If you want to cancel an app-store subscription, do it in the store.

What happens to my chats, characters and data?

This is the open question. Here's what's on the record:

1. The privacy policy still applies. The company says your information "continues to be protected under our Privacy Policy." Straight Arrow News notes that the policy lets the company disclose "certain information" during the negotiation or closing of a merger or sale of company assets, and CBS News reports it allows user data, including chat logs, to be shared if the company is sold.
2. Disney's bid leaves user data out. Any buyer of the app or its data would be a different bidder. None had appeared by October 14.
3. States are pushing for safeguards. A group of 40 state attorneys general urged the court on October 14 to protect young users and keep their data safe, Reuters reported; the states want any buyer to protect users' chat histories and improve safety features. New York Attorney General Letitia James said the company "has collected some of the most private thoughts children have ever shared."
4. A privacy ombudsman is possible. Bankruptcy law can require a judge to appoint a consumer privacy ombudsman when a proposed sale of personal data conflicts with the privacy policy. As of October 13, nobody had asked the court to do so, Straight Arrow News reported. In 23andMe's 2025 bankruptcy, 27 states, Washington, D.C., and the US Trustee Program pushed for an ombudsman and the court appointed one, the same report notes.
5. Users aren't treated as creditors. A first-day filing (docket item 8), as summarized by PPC Land, refers to "current and past platform users (approximately 163 million)" and says emailing all of them would be cost-prohibitive. The company says it doesn't believe users are creditors entitled to notice, and proposes posting notices on the claims agent's website and its blog instead.
6. Public characters can outlive your account. Under the company's policies, it can keep a public character you created active after you delete your account, Straight Arrow News reported.

What you can do now (from Character.AI's help center): request an export under Profile Settings → Account → Manage Account & Data → Export Data on the web, or Settings → Legal & Privacy → Export Data in the app. The help article says exports take three to four weeks, and the emailed link expires after seven days. If you plan to delete your account, wait until the export arrives. Our guide to Character.AI alternatives covers where to go next.

Does the bankruptcy change age verification?

Not so far. Character.AI announced on October 29, 2025 that it would end open-ended chat for users under 18 no later than November 25, 2025, using an in-house age-assurance model plus tools from Persona. Age prediction is among the technology licensed in the Disney bid. The states' filing makes minors' data a likely issue in any sale.

What's confirmed, reported and uncertain

• Confirmed by the company: the October 12 Chapter 11 filing in Delaware; the sale process and the late November–early December target; Disney's $20 million stalking-horse license; the platform and subscriptions staying active; the export steps and timing in its help center; and the possibility of a wind-down.
• Confirmed by the claims agent's case page (Stretto): the case number, 26-11603 (BLS), and Judge Brendan Linehan Shannon.
• Confirmed by Disney: Anand's hiring as CTO (September 18, effective October 2).
• Reported (Reuters, CBS News, TechCrunch, Route Fifty): the October 14 hearing; the losses of $8 million to $9 million a month; the 12 million active users; the state lawsuits and foreign investigations; the 40 states' intervention; Fay's statements about Disney and user data; the $2.7 billion Google figure (WSJ).
• From filings as summarized by PPC Land: the license's exclusions; the proposed bid, auction and sale-hearing dates; the 163 million user figure; the creditor list; the interim cash-management order.
• Uncertain: whether anyone bids for the app or its data; what a buyer could do with chats; whether an ombudsman is appointed; subscriber refunds if the app closes.

AI apps can disappear fast. OpenAI closed the Sora app within about a month of announcing it (our Sora shutdown explainer). Regulators are also asking AI companies for more records, as in the FTC's demands to OpenAI and Anthropic (our FTC story), and companies are tightening the rules for how people use chatbots (Anthropic's usage-policy change).