Character.ai Enters Chapter 11 in Delaware, Plans Court-Supervised Sale With $20M Disney Bid
Character Technologies Inc., which operates the AI companion platform Character.ai, filed for voluntary Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on October 12, 2026. The company is pursuing a court-supervised sale and has signed a stalking horse agreement with a Disney affiliate to buy select intellectual property and software licenses for $20 million. CEO Colin Adams cited "significant legal, regulatory and operational headwinds" as the reason for the filing. The filing follows a January 2026 settlement, reached with Google, of several lawsuits, including the case brought by Megan Garcia over the 2024 suicide of her 14-year-old son, Sewell Setzer III. Separately, New Hampshire Attorney General John M. Formella and 39 other state attorneys general have intervened in the bankruptcy, demanding binding consumer protection and privacy safeguards. Pennsylvania sued the company in May, and Kentucky sued in January.