Character.AI's maker filed for Chapter 11 bankruptcy on October 12, citing "significant legal, regulatory and operational headwinds," CBS News reported. Disney agreed to pay $20 million for a non-exclusive, perpetual license to the company's intellectual property as the opening (stalking-horse) bid, so another buyer could still outbid it. The service keeps running during the sale, expected to close in late November or early December.

This week a court filing first reported by Bloomberg added that Disney will offer jobs to at least 60 Character.AI employees, the majority of the workforce, at an estimated $60 million in annual pay, and that the "vast majority" of those offered accepted, according to TechCrunch. Character.AI's former CEO Karandeep Anand recently became Disney's first CTO. The company has faced lawsuits from families who say its chatbots contributed to teens' self-harm or suicide (several were settled in early 2026) and suits from Kentucky and Pennsylvania.