← Industry changelog

Character.AI filed for Chapter 11 and will be wound down unless a buyer keeps the platform running

By The Eliza Report · Published October 14, 2026, 08:30 UTC · Updated October 31, 2026, 01:18 UTC

Character Technologies, Inc., the company behind Character.AI, filed a voluntary Chapter 11 petition in the US Bankruptcy Court for the District of Delaware on October 12, 2026 (case 26-11603). The company says the platform 'remains up and running', that 'your subscriptions remain active, and billing is unchanged for now', and that the court-supervised sale should be complete 'by the end of November or perhaps early December 2026'. Disney is the opening bidder at $20 million, for a 'non-exclusive perpetual license of certain Company intellectual property and certain Company claims': not the app, the brand, the chat models or the user data. 'If such a bid is unavailable, however, the platform will be wound down.' The company told the court on October 27 that it 'does not need to operate the Character.AI platform for any further period to close the Disney transaction'. A hearing on the sale rules was set for October 30; no order had been posted when we last read the docket.

Event date

2026-10-12 · the petition date on the Delaware docket (Doc 1, filed 10/12/26); the company's blog post and press release went out the same evening, US time

App

Character.AI · prices, rules and full change history

Primary source

Stretto: Character Technologies, Inc., case 26-11603 (BLS), District of Delaware (docket, dates, contacts)

Character.AI before and after the filing

What happened

The petition, Doc 1 on the docket, was signed on October 12 by Colin M. Adams as 'Chief Executive Officer' and by Erin R. Fay of Wilson Sonsini Goodrich & Rosati as counsel. It ticks the $50,000,001 to $100 million box for both estimated assets and estimated liabilities, puts the number of creditors at 100 to 199, and says funds will be available for unsecured creditors. The case is before Judge Brendan L. Shannon; the first-day hearing was set for 'October 14, 2026 at 1:30 p.m. (ET) before the Honorable Brendan L. Shannon'. Stretto is the claims agent and hosts the public docket.

The Disney deal predates the filing by almost a month, and it was signed the day the CEO's move was announced. The first-day declaration says the board 'signed the agreement on September 18, 2026', the date of Disney's press release naming Karandeep Anand its Chief Technology Officer and of Character.AI's own post, which said only 'The app is still live and online'. Under that agreement, 'Disney agreed to hire the majority of Character's workforce, including the Debtor's chief executive officer up front and prior to the Petition Date', 'Disney agreed to pay, pursuant to the EPA, $7,500,000 of the $20,000,000 cash consideration up-front, $2,000,000 of which is serving as a refundable good-faith deposit', and 'the Debtor agreed to negotiate exclusively with Disney with respect to the Disney Target Assets from September 18, 2026 through the Petition Date'. Our September 18 changelog line said neither announcement mentioned a deal between the two companies. That was true of the announcements; the filings show the deal was already signed.

What $20 million buys is 'a perpetual, worldwide, non-exclusive license to certain of Character's intellectual property and related technology' plus 'the purchase of unreleased claims (if any) against the newly hired employees', with transition services 'using former Company employees it has hired'. The licence agreement's exclusions are the whole consumer product: 'any trade names, logos, common law trademarks and service marks', 'any domain names', the consumer-facing applications, 'end user data or databases, any personally identifiable information of Licensor end users', and 'training data or any Finished Models, including each user-selectable conversational model or chat style'. So Disney's bid, as filed, does not keep Character.AI alive. The sale motion is explicit: 'If such offers are unavailable, or if the transaction with Disney is not approved, Character's platform will be wound down.'

The calendar in the proposed bidding procedures: other stalking-horse bidders can be named until November 9; sale objections are due November 13; bids must be 'received on or before November 20, 2026 at 5:00 p.m. (ET)'; if more than one qualifies, 'the Auction shall be held on November 23, 2026 at 10:00 a.m. (ET)'; and the sale hearing is set for 'November 24, 2026, subject to Court availability'. The motion says a rival winner must close by November 30; the procedures attached to it say 'by no later than December 17, 2026', and the signed order will settle which. Disney can walk away if the sale has not closed by 'December 17, 2026'. Disney's protection is a 'break-up fee and expense reimbursement of $700,000', so a topping bid has to be worth at least $20 million plus that fee plus $1,000,000. None of this was approved at filing: the company asked the court to hear the procedures motion on shortened notice (Doc 16), and the declaration's own words are 'time is of the essence'.

The declaration is the first public look at Character.AI's books. Revenue was 'nearly doubling from approximately $2.8 million for the month of December 2025 to approximately $5.3 million for the month of August 2026'. Subscriptions: 'by August of 2026, this revenue stream was $2.8 million' a month. Advertising, launched in mid-2025, grew 'from approximately $0.5 million in July 2025, its first full month, to approximately $2.5 million in August 2026'. By year, 'total revenue grew from approximately $7.4 million in fiscal year 2024 to approximately $23.6 million in fiscal year 2025'. Costs fell faster than revenue rose: monthly operating expenses excluding legal fees were down to about $13.3 million by August, and 'net cash burn per month had declined to approximately $8.2 million by August 2026, compared with monthly averages of approximately $21.5 million in the second half of 2024 and approximately $17.6 million in 2025'. The company entered the case with 'no funded debt and approximately $57 million in unrestricted cash', calls its estate a 'melting ice cube', and expects to 'end the first quarter of 2027 with a positive cash balance' only if the sale runs to schedule.

Why nobody bought it. The declaration says an investment bank hired in August 2025 'approached approximately 28 potential parties' and heard that 'the litigation and regulatory overhang on Character was too great'; the outreach 'resulted in only one proposal that was ultimately deemed to be unworkable'. By September 2026 the company 'was experiencing mounting employee attrition and diminishing morale'. The summary line: 'attempts to raise capital or monetize the business have been unsuccessful due to Character's potential liabilities and the current regulatory environment'. The 2024 Google deal is described as 'approximately $2.7 billion in total consideration' under which 'Google rehired the founders of Character and Character granted a non-exclusive license of its technology at the time to Google'. Google is now the largest creditor on the petition's top-20 list: 'Google LLC', a 'Trade Payable' of '$4,148,944.00'. The rest of the list is cloud and inference vendors (DigitalOcean, Fireworks.Ai), Apple, and law firms, Hogan Lovells first among them at $2,125,026.

The legal picture, as the company states it: 'by early 2026, Character was able to settle all then-pending personal injury lawsuits'. 'In August 2026, an additional complaint was filed against Character in the Northern District of California alleging harm to a minor', and 'this is the only outstanding personal injury lawsuit against Character'. Kentucky's suit, filed January 8, is 'presently at the motion to dismiss stage' and 'Character and Kentucky remain in settlement negotiations'; Pennsylvania's medical-licensing case is in the Commonwealth Court; a multistate group of attorneys general is negotiating a consent order through 'an executive committee of seven states'; and UK regulators have had the company under investigation since 2025. The filing freezes all of it under the automatic stay, and the declaration says the company hopes 'to bring all creditors to a single forum for global negotiations'.

For users, nothing changes today and everything may change in six weeks. Billing continues, and the company says it will 'notify subscribers in advance' if paid features change. Data stays under the current privacy policy and can be exported, though the help article warns 'exports can take 3-4 weeks to process' and the download link 'will be valid for 7 days', so anyone who wants a copy before the November 24 sale hearing should ask now. The company told the court it 'does not believe its current and past platform users are creditors to whom notice must be provided', that there are 'approximately 163 million' of them, and that emailing them all 'would be cost-prohibitive'; notice goes out through the blog and the platform instead. We will update this record at each milestone: the bidding procedures order, the November 20 bid deadline, the November 24 sale hearing, and any wind-down notice.

Updated 2026-10-17: the first-day hearing went ahead on October 14, and 'the Court approved the First Day Motions identified above on an interim basis' (Doc 44): Character.AI can keep paying staff, critical vendors, taxes, insurance and utilities and keep its bank accounts open (Docs 36 to 42), with a final hearing on 'November 17, 2026 at 10:00 a.m. (ET)'. Judge Shannon also agreed to hear the sale rules early. 'Approval of the Bidding Procedures Motion shall be considered on October 30, 2026 at 10:00 a.m. (ET)', and objections are due 'on or before October 23, 2026 at 4:00 p.m. (ET)' (Doc 43). The November bid and auction dates above are still only proposed; October 30 is when they are approved, changed or refused. The meeting of creditors is set for November 19 by Zoom, and the deadline to file claims is 'Not yet set' (Doc 54).

Updated 2026-10-17: the states have joined the case. On October 14 the attorneys general of 39 states and the District of Columbia filed a notice of interest and reservation of rights (Doc 33). Several of them 'issued subpoenas or civil investigative demands' and found 'chatbots posing as licensed professionals; minor exposure to explicit sexual content, self-harm, violent, and other harmful Chatbot conversations; insufficient age assurance practices; misrepresentations concerning product safety; and failure to comply with state comprehensive privacy laws'. The company's declaration described talks with 'an executive committee of seven states'; the states' answer is that 'to date, no resolution has been reached'. They want any buyer of the business, the app or the user data, chats included, to commit to nine conditions, among them age checks that do not 'rely solely on self-declared birthdates', removing characters that pose as therapists, doctors or lawyers, no training on chats beyond what users agreed to, and 'allowing all consumers the opportunity to delete their data prior to any sale of that data'. They keep the right to ask for 'a consumer privacy ombudsman', an official the court can appoint to report on a sale of personal data before it is approved. Not on the filing that day: Alabama, Arizona, Florida, Iowa, Maryland, Missouri, Montana, Nebraska, New Mexico, Texas and Wyoming. Florida joined on October 20 (see below).

The states' filing also puts two numbers on the record that the company's own papers left out. Citing Kentucky's complaint, it says 'more than 21.6 million U.S. user accounts had been created by March 13, 2025, including more than 2.1 million accounts with a declared age under 18'. And it argues that the under-18 chat ban protects less than it sounds: it applies 'only to users the Debtor accurately identifies as minors', does not cover Stories, and 'is voluntary and could be rolled back at any time, including by a purchaser'. Exhibit A is Kentucky's complaint as filed in Franklin Circuit Court on October 7, the version Reuters described, so it can now be read in full; paragraph 73 is the bot that told a user to 'starve yourself for a week or two'.

Updated 2026-10-22: Florida has joined the states. Its attorney general 'joins the Notice of Interest and Reservation of Rights by the Coalition of the State Attorneys General' in a one-paragraph filing dated October 20 (Doc 58), which makes 40 states and DC. Ten are still not on it: Alabama, Arizona, Iowa, Maryland, Missouri, Montana, Nebraska, New Mexico, Texas and Wyoming. Kentucky, Florida and Pennsylvania filed their own appearances (Docs 55, 56, 61 and 62); Kentucky's keeps 'any right to challenge the jurisdiction of the Court pursuant to the Eleventh Amendment'. The transcript of the October 14 hearing is filed, but 'Remote electronic access to the transcript is restricted until 1/19/2027' (Doc 59). The company's list of everyone it must notify (Doc 29, filed October 13) includes the Federal Trade Commission, the UK's 'Office of Communications (OFCOM)' and 'Information Commissioner's Office', the 'Australian eSafety Commission', the 'European Commission (European AI Office)' and Italy's 'Garante per la Protezione dei Dati Personali'. The list itself warns that the parties on it 'may not hold outstanding claims', so it shows who was told about the case, not who is investigating. As of October 22 at 21:45 UTC nobody had objected to the sale rules, the deadline being October 23, and no rival bidder had appeared in court or in the press.

Updated 2026-10-31: the sale rules are being fought over, and we do not yet know the result. The court moved the hearing up: 'THE HEARING WILL BEGIN AT 9:00 A.M. (ET)' on October 30 (Doc 82). The last status the company filed read 'The objections are presently unresolved'. The docket we read at 01:18 UTC on October 31, 9:18 p.m. in Delaware, ends at Doc 94 and shows no bidding procedures order and no note of the outcome. Doc 94, signed October 30, only says the company's late reply is 'deemed timely filed'. That silence may just be a same-day gap. Approval of the sale itself was not up that day, per the company's reply. Its revised draft order (Doc 74) and sale notice (Doc 90) keep every date above and add nothing on age checks or an ombudsman; the notice does say the Disney assets 'exclude PII'. Disney could walk if the court 'fails to enter the Bidding Procedures Order' by 'the 21st day following the commencement of the Chapter 11 Case or such later date as may be required by the Bankruptcy Court' (Doc 15): by our count, November 2.

The states' objection (Doc 66, October 23) is about the deal, not the nine safety conditions. Thirty-one states and DC signed it, and the other nine states on the coalition joined by October 29 (Docs 79 and 81), so the count stays 40 and DC, with the same ten out. Their case: Disney got the staff first, and the bid protections would make that stick. 'By Disney's own estimate, the employees it hired will receive approximately $180 million in compensation and retention over three years', against a $5.5 million payment that is 'non-refundable in all circumstances.' They call the overbid rule too high ('a competing bidder must offer at least $21.7 million even though any bid above roughly $15.2 million would leave the estate better off.') and the calendar backwards ('Creditors must therefore object to a sale before they know who the buyer is, what it will pay, or what releases it will demand.'). They want the rules denied or rewritten, the bid date moved at least 21 days, and a notice 'posted on the Character.AI platform itself'. The company answers that its overbid rule applies only to bids that would stop Disney's deal, and Disney says it 'was the only party to come forward with an actionable offer'. These are each side's arguments, not findings.

The sharpest dispute is your data. The US Trustee, the Justice Department's bankruptcy watchdog, says 'Any sale of customer data, which includes personally identifiable information' cannot go ahead 'absent the appointment of a consumer privacy ombudsman' (Doc 69), and that the privacy policy, 'updated on July 1, 2026, while the Debtor was apparently actively seeking to sell its assets', is ambiguous about a sale. The company's answer (Doc 73): 'its privacy policy, as in force on the Petition Date, permits the sale and transfer of user data', so no ombudsman is required, though it may 'consent to the appointment of a CPO under appropriate circumstances'. The states joined the Trustee on this (Doc 80). The company and Disney say 'Disney has no access to the Debtor's user data'; the states point to 'Disney personnel's access to user personal data' under the services agreement, which allows for it under limits: 'To the extent Service Provider's personnel access Personal Data, such access will be conducted directly through Service Recipient Systems'. On deleting before a sale, the company says only that it 'honors such requests'. Anyone who does not want their chats going to a buyer should export and delete now; exports take weeks.

What the new filings say about the app's survival. The company: 'the Debtor does need to continue operating the platform for purposes of soliciting competing bids that would see the platform continue.' If no bidder appears it would 'wind down the platform safely', and something 'beloved by millions of users will be shut down'. It claims 'significant interest' but gives no number or name. The Trustee's view of who is left: 'The Debtor was left without sufficient employees to continue to operate the Character.AI platform', with former staff at Disney giving 'up to 20% of their time' for at most five months. A minor plaintiff in the California suit also filed a statement (Doc 87): it 'does not oppose the Debtor's efforts to advance the sale process' but asks to 'be made a Consultation Party', and says no creditors' committee has been appointed. Next on the docket: retention and first-day hearings November 17, with retention objections due November 10.

Sources

• Stretto: Character Technologies, Inc., case 26-11603 (BLS), District of Delaware (docket, dates, contacts)
• Voluntary petition, Doc 1 (filed 2026-10-12), with the list of the 20 largest unsecured creditors
• Declaration of Colin M. Adams in support of the petition and first day motions, Doc 18 (2026-10-13)
• Bidding procedures motion, with the Disney stalking horse agreement and the sale calendar, Doc 15 (2026-10-13)
• Motion to redact personal information and approve notice of commencement, Doc 8 (2026-10-13)
• Notice of the first day hearing, Doc 20 (2026-10-13)
• State attorneys general: notice of interest and reservation of rights, with Kentucky's complaint as Exhibit A, Doc 33 (2026-10-14)
• Order shortening time: bidding procedures heard October 30, Doc 43 (2026-10-14)
• Omnibus notice of the first day orders and the November 17 final hearing, Doc 44 (2026-10-14)
• Notice of the meeting of creditors, Doc 54 (2026-10-15)
• Creditor matrix (the notice list), Doc 29 (2026-10-13)
• Florida attorney general's joinder to the states' notice, Doc 58 (2026-10-20)
• The states' objection to the bidding procedures, Doc 66 (2026-10-23)
• United States Trustee's objection (consumer privacy ombudsman), Doc 69 (2026-10-27)
• Company's motion for leave and omnibus reply, Doc 73 (2026-10-27)
• Revised proposed bidding procedures order, Doc 74 (2026-10-27)
• Disney's joinder to the reply, Doc 77 (2026-10-27)
• Eight states' joinder, Doc 79 (2026-10-28)
• States' joinder to the US Trustee's objection, Doc 80 (2026-10-29)
• Florida's joinder, Doc 81 (2026-10-29)
• Amended hearing agenda: start moved to 9:00 a.m., Doc 82 (2026-10-29)
• Revised sale notice, Doc 90 (2026-10-30)
• Order allowing the late reply, Doc 94 (2026-10-30)
• Kentucky notice of appearance, Doc 55 (2026-10-20)
• Notice of filing of the October 14 hearing transcript, Doc 59 (2026-10-21)
• Character.AI blog: An Update on Character.ai (2026-10-12)
• Business Wire: Character.ai Initiates Voluntary Chapter 11 Proceeding to Facilitate Value-Maximizing Sale Process (2026-10-12)
• Reuters: Character.AI files for bankruptcy, agrees to sell some assets for $20 million (2026-10-12, as carried by KFGO)
• CNN Business: Character.ai files for bankruptcy following lawsuits alleging ties to teen suicides (2026-10-13)
• Disney press release: The Walt Disney Company Names Karandeep Anand To Newly Created Role Of Chief Technology Officer (2026-09-18)
• Character.AI blog: The Next Chapter of Entertainment and Fandom (2026-09-18)
• Character.AI help center: How do I download my data? (created 2026-10-08)

To cite this page: The Eliza Report, "Character.AI filed for Chapter 11 and will be wound down unless a buyer keeps the platform running", published 2026-10-14, last checked 2026-10-31, https://elizareport.com/changelog/2026-10-12-character-ai-bankruptcy/

Related records

• Character.AI added (c.ai) lite, a $4.99 plan between Free and c.ai+ (September 2026)
• Character.AI's open-persona era: how the under-18 chat ban changed the app

More on Character.AI

• 2026-10-15 The first wrongful-death suit, Garcia v. Character Technologies (the Sewell Setzer case, Middle District of Florida), ended: the family…
• 2026-10-14 The support page the bankruptcy post links to, 'Resources You Can Turn To', was rewritten for all users. It used to be the October 2025…
• 2026-10-08 New help article on downloading your account data: Export Data sits under Profile Settings > Account > Manage Account & Data on the web and…
• 2026-10-07 Kentucky filed an unredacted version of its complaint. Reuters, which the Attorney General's office gave a copy, reports it quotes…

Character.AI: prices, rules and every recorded change · Character.AI alternatives, ranked