Character.AI Bankruptcy: Disney Gets the Code, Not Your Chats

Character.AI is still running after its bankruptcy filing, and Disney's $20 million deal gets the company's code and most of its staff, not the app or your chats. Court papers show Disney Worldwide Services, a Disney affiliate, would take a non-exclusive, perpetual license to Character.AI's technology and nine patents and patent applications, while hiring the bulk of the workforce. The app, its brand, user accounts and every message users typed stay in the bankruptcy estate. If no buyer steps in to keep the platform going, Character.AI says it will be wound down.

What happened

Character Technologies, the company behind Character.AI, filed for Chapter 11 late on Monday, October 12, in the US Bankruptcy Court for the District of Delaware, according to Reuters. In its press release, the company said Disney would serve as the "stalking horse" bidder, the first offer that rivals must beat, paying $20 million plus transition services from former Character.AI employees it has hired.

The story moved again on Sunday, October 18, when TechCrunch reported, citing a filing spotted by Bloomberg, that Disney agreed to make offers to at least 60 Character.AI employees, the majority of the workforce, and that the "vast majority" of those offered jobs accepted. Business Insider reported that 66 staffers got offers, 56 have already resigned from the startup and 10 are waiting on US work visa updates. Disney previously hired Character.AI's former CEO, Karandeep Anand, as its first company-wide tech chief.

Key details

The money for people: A term sheet attached to the bidding procedures motion says Disney estimates the offered employees' annual pay at about $60 million, plus a $30 million retention pool. It puts total compensation and retention over three years at about $180 million, paid directly to employees rather than to Character.AI.
The money for the company: Character.AI gets $20 million in cash. Disney paid $7.5 million of that up front before the filing, including a $2 million refundable deposit.
Not a takeover: The term sheet says Disney "will not acquire or operate" Character.AI's consumer-facing platform, customer accounts, trademarks or websites, and the deal is not a transfer of the business as a going concern.
Why it failed: The motion says about 28 potential parties approached by an earlier banker found the "litigation and regulatory overhang" too great. Reuters reports the company loses about $8 million to $9 million a month despite roughly 12 million active users.
Who runs the app now: Disney's newly hired staff provide transition services to help keep the platform operating safely for a limited time. Character.AI's current CEO is Colin Adams.

Quick answers

Is Character.AI shutting down?

Not right now. Character.AI's official update says the platform "remains up and running." It will be wound down only if the sale doesn't produce a buyer that keeps it going.

Did Disney buy Character.AI?

No. Disney is bidding for a non-exclusive license to certain technology and claims, not the company, the app or the brand. Character.AI keeps ownership of the licensed code and can license it to others.

Is my Character.AI subscription still active?

Yes. The company says subscriptions remain active, billing is unchanged for now, and subscribers will be told in advance if paid features change.

How do I download my Character.AI chats?

On the web, go to Profile, Profile Settings, Account, Manage Account & Data, then Export Data. The help center says exports take 3 to 4 weeks, and the download link lasts 7 days.

What Disney gets vs. what stays behind

Here is how the Disney license agreement in the court filing splits Character.AI's assets.

Asset	Goes to Disney?	What the filing says
Training, safety and serving code	Yes, licensed	Includes the post-training stack, model safety stack, a long-horizon safety monitor called Guardian and an age prediction model
Patents	Yes, licensed	Nine patents and applications, four of them issued
Most of the staff	Yes, hired	Offers to at least 60 employees plus up to 6 key employees, including the CEO
The app and website	No	Consumer-facing applications are excluded
Brand and domains	No	Trademarks, domain names and social accounts are excluded
User data and chats	No	End user data, user inputs and the outputs generated for users are excluded
Finished models and training data	No	Each user-selectable conversational model or chat style is excluded

The license is limited to products under Disney-controlled branding, and Disney will own any models or weights it builds with the code.

Why it matters

Your chats are the open question. Because user data stays in the estate, whoever buys the platform could end up holding it. The Verge reports that 40 bipartisan attorneys general, including New York's Letitia James, filed a notice in the case and want the judge to require any buyer to put in place age checks, crisis safeguards and a way for users to delete their data. State attorneys general are increasingly using their investigative powers on AI companies, as in California's investigative subpoena to OpenAI.
Regulators are watching. The motion lists the Federal Trade Commission, the Justice Department's Antitrust Division and state attorneys general among the parties to be served notice of the sale. The FTC is already looking at AI risks elsewhere, as our report on the FTC probe of OpenAI and Anthropic explains.
Talent beats the product. Disney expects to spend about nine times as much on the people ($180 million over three years) as it pays the company ($20 million). It is another sign that AI companies win or lose on their engineers and partners; just this week Replit made OpenAI its default over Anthropic.
Users worldwide are affected. The Sydney Morning Herald reports the conversations of up to 125,000 Australian children who use the app are part of what remains for sale.

What's next

The first big date is a court hearing on the bidding procedures and Disney's stalking horse role on October 30 at 10:00 a.m. ET in Wilmington, Delaware, before Judge Brendan L. Shannon, according to the notice of hearing. Objections are due October 23 at 4:00 p.m. ET.

Under the proposed schedule, rival bids are due November 20 at 5:00 p.m. ET, with an auction on November 23 and a sale hearing on November 24. Any rival must top Disney by the $700,000 break-up fee plus $1 million. Disney's agreement sets an outside closing date of December 17. Filings are posted on the Stretto case site. Disney declined to comment to Reuters and didn't respond to Business Insider.

If you use Character.AI, request your data export now rather than later, since it can take weeks. If you'd rather leave, the account deletion page warns that deletion is permanent, so export first.

FAQ

Why did Character.AI file for bankruptcy?

The company cited significant legal, regulatory and operational headwinds. Court papers describe high costs, a limited cash runway and buyers deterred by its litigation and regulatory risks.

How much is Disney paying Character.AI employees?

Disney estimates about $60 million a year in total pay for the offered employees, plus a $30 million retention pool, or about $180 million over three years.

Who will get Character.AI user data?

Not Disney. User data and chats are excluded from Disney's license and stay with the bankruptcy estate. A future buyer of the platform could acquire them, which state attorneys general want the court to police.

When will the Character.AI sale be decided?

Bids are due November 20, with a proposed auction on November 23 and a sale hearing on November 24. The company expects the process to finish by late November or early December 2026.

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