Character Technologies filed for Chapter 11 on 13 October, citing costs and litigation. Its filing lists assets and liabilities in the $50 to $100 million range against more than $193 million raised across its life. Disney is offering $20 million for certain assets plus a non-exclusive perpetual technology licence, and has separately agreed to hire most of the company's staff. Closing is expected in late November or early December 2026.
Twenty million for a company that raised nearly ten times that is the whole story in one number. Character.AI was among the most used consumer AI products by engagement time, and its collapse is not a demand failure - it is what happens when the cost of serving that engagement meets the legal exposure created by who was doing the engaging.
Which is why the sale is contested. On 14 October, New York Attorney General Letitia James and 39 others - 40 including the District of Columbia - asked the bankruptcy court to attach conditions to any sale: age verification beyond self-disclosure, a comprehensive privacy programme, removal of chatbots falsely presenting as licensed professionals, and the right for users to access and delete their data before it transfers. The asset at issue is not the software. It is private chats, voice calls, mental health disclosures, ages and device data, all of which would move to a buyer through the bankruptcy unless a court says otherwise.
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