High-profile case10/13/2026

Character.AI Seeks Chapter 11 Bankruptcy Protection in the United States

Character.AI, founded by artificial intelligence researchers Noam Shazeer and Daniel De Freitas, has initiated Chapter 11 bankruptcy proceedings in the United States. In parallel, it has reached a preliminary agreement to sell part of its assets to Disney for $20 million, though other bidders will be able to submit higher offers.

Key facts

•Proceeding: Chapter 11 protection from creditors in the United States
•Assets: between $50 million and $100 million
•Liabilities: between $50 million and $100 million
•Disney’s initial offer: $20 million
•Expected sale date: from late November to early December 2026
•The case number, court, and exact filing date were not specified

What Happened

Character.AI filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. According to documents filed with the court, the company’s assets and liabilities are each estimated at between $50 million and $100 million. The source did not specify the case number, the court’s name, or the exact filing date.

How the Sale Process Will Be Conducted

The company intends to sell assets, including licenses to use part of its intellectual property, under court supervision. Disney will serve as the initial bidder; its $20 million offer will set the floor price for the auction, but competitors will be able to submit higher bids. Character.AI expects to complete the sale in late November or early December 2026.

What Will Happen to the Platform

Character.AI plans to continue operating during the proceedings and minimize disruption to users as much as possible. If no buyer willing to support the service is found, the company is not ruling out ceasing operations. It remains unclear exactly which assets Disney may acquire and how a potential deal would affect users.

Why the Company Reached This Point

In 2024, Google entered into a deal with Character.AI worth approximately $2.7 billion, under which it obtained a technology license and hired the founders and about 30 employees, but did not acquire the company itself. Character.AI also faced lawsuits concerning platform safety, alleging that conversations with chatbots contributed to psychological harm to minors; some proceedings ended in settlements. According to CEO Karandeep Anand, the board determined that a court-supervised asset sale was the best way to maximize returns for stakeholders.

What this means for you

For Character.AI users in Israel, the service is expected to continue operating for the time being, but its future availability depends on the outcome of the sale. The Disney deal is not yet final, and the composition of the assets to be purchased is unknown. If the buyer does not agree to continue operating the platform, the service could be shut down.

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