Slashdot has reported:

Character.AI has filed for Chapter 11 bankruptcy protection and plans to sell all or substantially all of its assets. Disney has offered $20 million as a stalking-horse bidder for select intellectual property and company claims, but the offer is subject to higher or better bids. The filing was made in the U.S. Bankruptcy Court for the District of Delaware.

The company, whose platform lets users create and interact with AI-generated avatars, said the process is intended to “facilitate a value-maximizing sale of all or substantially all” of its assets. Its platform will continue operating during bankruptcy. Character.AI is aiming to complete the sale by late November or early December.

Under an agreement reached before the filing, Disney would receive a non-exclusive, perpetual licence to select intellectual property and company claims. The media company would also provide resources during a transition period as Character.AI explores a sale. The company said Disney’s bid remains open to higher or better offers.

Character.AI has faced legal and regulatory scrutiny over the past year or so. It settled multiple lawsuits alleging its chatbots encouraged self-harm and suicide among teenagers, including a high-profile case involving 14-year-old Sewell Setzer III. Kentucky has also sued, alleging the chatbots encouraged self-harm.

A Pennsylvania lawsuit claims the bots illegally impersonated licensed doctors. Those allegations followed earlier complaints that Character.AI’s therapy chatbots engaged in the unlicensed practice of medicine.

In September 2025, Disney accused Character.AI of copyright infringement and of using its characters in chatbots that were “sexually exploitive and otherwise harmful and dangerous to children.” The characters were removed from the platform after the accusation. The mounting legal challenges and regulatory scrutiny contributed to Character.AI’s bankruptcy filing.