From Google Deal to Bankruptcy: Character.AI Files for Chapter 11, Puts Disney In Driver’s Seat With $20 Million Deal for Key Assets

Character Technologies Inc., also known as Character.AI, filed for Chapter 11 bankruptcy protection on Monday and agreed to sell select assets, including intellectual property, to Walt Disney Co. (NYSE:DIS) for $20 million, subject to court approval.

The company is asking the court to approve auction procedures naming Disney as the stalking-horse bidder. That role would establish a minimum purchase price while allowing competing buyers to submit higher offers.

The sale process could be completed in late November or early December this year. A court filing estimated Character Technologies’ assets and liabilities at between $50 million and $100 million.

"After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the company with the best opportunity to maximize value for all stakeholders," CEO Colin Adams said.

Character Technologies said Character.AI would continue operating with minimal disruption during the proceedings. If no buyer agrees to continue running the platform, the company said it would wind down the business.

Character.AI Shifted Focus After Google Deal

The bankruptcy follows a major strategic shift. In October 2024, Character.AI moved away from developing large language models after its founders and staff joined Alphabet Inc. Google (NASDAQ:GOOGL) (NASDAQ:GOOG) in a $2.7 billion deal.

At the time, interim CEO Dominic Perella said the company would focus on consumer products, particularly its chatbot platform, rather than pursue the expensive development of foundational AI models.

In August 2024, Character.AI signed a deal with Google granting the tech giant a non-exclusive license to its large language model technology. The agreement provided additional funding for the startup, though it did not disclose the amount. Character.AI had also named General Counsel Dominic Perella as interim CEO. The deal came amid growing regulatory scrutiny in the U.S. and Europe of Big Tech’s AI partnerships, licensing agreements, and hiring of startup researchers.

Character.AI also faced legal scrutiny in May 2026. Pennsylvania sued the company after the state alleged that a chatbot presented itself as a licensed psychiatrist.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image via Shutterstock