Character.AI bankrupt, Disney to hire most employees
For years, the AI character chat platform spent more on computing power than it earned. The entertainment giant now wants to license its technology and take over most of the team.
Character.AI filed for creditor protection under Chapter 11 of the U.S. Bankruptcy Code on October 12, 2026 (Chapter 11 is a procedure in which a company continues operating during restructuring or the sale of assets). The case is being heard in bankruptcy court in Delaware. The company estimates its liabilities at $50-100 million.
Disney is the lead bidder. It is offering $20 million for selected assets and a non-exclusive license to part of the intellectual property. This is a so-called stalking horse bid, meaning a starting price in an auction that other interested parties can outbid. According to a court document obtained by Bloomberg and described by TechCrunch (opens in a new tab), Disney will make job offers to at least 60 employees, or most of the workforce. Their combined annual compensation was estimated at $60 million, and the vast majority of those people have accepted the offers. Disney had previously hired former Character.AI CEO Karandeep Anand as its first chief technology officer.
Documents from the proceedings, described by 404 Media and Spider's Web (opens in a new tab), show the reasons for the bankruptcy. From January to August 2026, the company spent $56.1 million on computing power and $19.7 million on salaries. In its best month, revenue from all sources reached $5.3 million, and in August the loss was running at $8-9 million per month. According to Law360, the largest unsecured creditor is Google, with a claim of about $4.15 million for computing infrastructure. The company also told the court about risks related to lawsuits and regulatory proceedings. These include lawsuits from users' families and a lawsuit filed in October by the state of Kentucky concerning harmful chatbot content.
The platform is still operating, including its paid subscriptions. The asset sale is expected to be completed in late November or early December. If no buyer is found willing to continue the service, the platform will be shut down. For companies that build their services on tools from young AI providers, this is an example that a large user base does not protect against a shutdown when server costs exceed revenue.