Character.ai Files for Bankruptcy | Disney Places $20M Stalking-Horse Bid
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The AI character you talked to every day might suddenly disappear one day. The company behind the popular AI character chat service "Character.ai" has entered bankruptcy proceedings.
This article explains what happened, why Disney stepped up, and what Japanese users should do.
The US-based operating company, Character Technologies, announced on October 12, 2026 (local time) that it had filed for Chapter 11 of the US Bankruptcy Code — a process that allows a company to continue operating while restructuring or being sold.
The filing was made in the US Bankruptcy Court for the District of Delaware. Under court supervision, the company plans to sell all or substantially all of its assets.
CEO Colin Adams stated that after the board of directors considered a wide range of options, it determined that a court-supervised sale was the approach that would maximize value for all stakeholders.
Bankruptcy might make you think the service will shut down immediately. However, what makes this case notable is that the company has stated the service will continue until the sale is complete.
Reports indicate the sale is expected to close in late November to early December 2026, subject to court approval.
Disney Worldwide Services, a subsidiary of Walt Disney, has agreed to pay $20 million to serve as the stalking-horse bidder.
A stalking-horse bidder is the party that sets the initial terms and establishes a minimum floor for the sale. If a buyer comes along with better terms, that buyer takes priority.
The deal covers a non-exclusive, perpetual license to certain intellectual property (IP) and certain claims — not an acquisition of the entire company.
Because the license is non-exclusive, there remains room for parties other than Disney to obtain the same rights. Disney will also take on transition support services, with former Character.ai employees hired by Disney responsible for keeping the platform running safely for a set period of time.
Note that the app itself is not included in Disney's bid. If no buyer steps forward to take it over, the service will be wound down in stages.
The company cited intense legal, regulatory, and operational headwinds as reasons for the bankruptcy filing.
A major burden has been litigation. In October 2024, the family of a 14-year-old boy who died by suicide sued Character.ai and Google, alleging that his dependence on Character.ai was a contributing factor.
According to TNW's reporting, the company settled five lawsuits in January 2026 involving teenagers' mental health crises and suicides. Since then, new claims have reportedly emerged from families and US state authorities.
In late October 2025, the company announced it would end open-ended chat (freeform conversations without a set topic) for users under 18. Restrictions on teenage use began rolling out in late November 2025.
According to Similarweb data, 52% of US web visitors were aged 18–24 — compared to 26% for ChatGPT's site — illustrating just how youth-centric the service was.
Here is a summary of the key events:
What makes this particularly interesting is the history between the two parties. According to TNW, Disney had asked Character.ai about a year earlier to remove chatbots that imitated Disney characters.
That same company is now standing as the stalking-horse bidder. At the time of filing, both assets and liabilities were each estimated at between $50 million and $100 million.
Several other services offer the ability to chat with AI characters. Notable examples include Replika and Talkie, operated by MiniMax.
General-purpose AI tools like ChatGPT can also be used to roleplay as characters. Usage patterns reveal a significant gap: according to Similarweb data cited by Sherwood, Character.ai's young users visited roughly 26 times per month and spent about 18 minutes per session. ChatGPT users visited about 13 times per month for roughly 6 minutes per session.
The broader industry is also proceeding cautiously. According to ITmedia, US-based Meta announced in January 2026 that it would suspend its AI character conversation feature for teenage users.
Since Character.ai is available in Japanese, this is not a distant concern for users in Japan.
According to the official FAQ, all services are currently accessible, paid subscriptions remain active, and billing will not change for the time being. Subscribers will be notified in advance of any changes that affect paid features.
The company states that data will be protected in accordance with its privacy policy, and that account deletion and data export are available through the app and website.
If you are a heavy user in Japan, these three steps are worth taking now:
There is also a lesson here for businesses. Companies that own anime or game characters need to build in rights management and safety measures from the outset whenever they license those characters for use in AI applications.
A. All services are currently accessible, and the plan is to keep operating throughout the sale process. However, if no buyer steps forward to take over, the service will be wound down in stages.
A. The official FAQ states that paid subscriptions remain active and billing will not change for the time being. If you are concerned, it is best to monitor future announcements before making a decision.
A. The company states that data will be protected under its privacy policy and that operating practices will not change. You can export your data through the app or website, so if you want to keep it, save it sooner rather than later.
A. No. Disney is currently only a stalking-horse bidder that has offered $20 million for a non-exclusive license to certain IP. If a better offer comes in, that offer will be selected instead.
Start by checking your app settings to see how to export any conversations or data you want to keep.
This article is a cross-post from AI Friends.
