Is Character.AI shutting down? The bankruptcy and sale, explained

The short answer

Not yet. Character Technologies, the company behind Character.AI, filed for Chapter 11 on October 12, 2026 to run a court-supervised sale. It says the platform is still running and paid subscriptions remain active for now. It also says that if no bid emerges that lets the platform keep operating, the platform will be wound down. The company expects the sale process to finish by the end of November or perhaps early December 2026. On October 30, the bankruptcy judge approved the rules for the sale at a hearing, Law360 reported; as of October 31 the written order had not been posted on the docket.

The case

• Court: U.S. Bankruptcy Court for the District of Delaware, case No. 26-11603 (BLS), before Judge Brendan L. Shannon.
• Filed: October 12, 2026, as a voluntary Chapter 11 case.
• Case documents: posted by the court-appointed claims agent, Stretto, on its case website.
• After the sale, the company says it plans to propose a Chapter 11 plan of liquidation to pay creditors.

What Disney's bid covers, and what it doesn't

Disney Worldwide Services is the proposed lead bidder, often called a stalking horse, offering $20 million in cash. Disney paid $7.5 million of that before the filing, including a $2 million refundable deposit. If the assets in Disney's deal go to another bidder, Disney would get a break-up fee and expense reimbursement capped at $700,000, if the court approves.

Disney is not bidding for the app. Its deal covers a perpetual, worldwide, non-exclusive license to certain Character.AI technology and patents, plus certain legal claims relating to former Character.AI employees who later joined Disney, as described in the company's sale motion. The license excludes user data, users' chats, training data, finished models, trademarks, domain names and the consumer apps. The company's sale motion says the platform will be wound down if no higher or better offers come in, or if the Disney deal is not approved. The company's blog says the platform will keep running only if a bid emerges that allows continued operations.

Key dates

At an October 30, 2026 hearing, Judge Shannon approved the bidding procedures and strongly encouraged the company to appoint a consumer privacy ombudsman, according to Law360. As of October 31, 2026, the written order had not appeared on the case docket. The dates below come from the company's revised proposed order (Doc. 74) and revised sale notice (Doc. 90), filed October 27 and 30; the sale notice still shows them in brackets until the order is entered. The procedures let the company extend the bid deadline and adjourn the sale hearing, and the bankruptcy court docket has the latest.

On October 23, a coalition of states and the District of Columbia objected to the proposed bidding procedures (Doc. 66). The filing asked the court to deny the procedures or require changes, including denying Disney's break-up fee or limiting it to documented expenses, measuring the minimum competing bid against the $14.5 million the states said remains at stake, and extending the bid deadline by at least 21 days. The U.S. Trustee also objected (Doc. 69), arguing that a sale of customer data, including minors' information, cannot be approved without a consumer privacy ombudsman. Objections are a party's arguments, not rulings.

• November 9, 2026: deadline to name additional stalking-horse bidders.
• November 13, 2026, 4 p.m. Eastern: deadline to object to the sale.
• November 19, 2026, 1 p.m. Eastern: meeting of creditors, run by the U.S. Trustee by Zoom.
• November 20, 2026, 5 p.m. Eastern: bid deadline.
• November 23, 2026, 10 a.m. Eastern: auction, held only if a qualified bid other than Disney's arrives.
• November 24, 2026: sale hearing, subject to the court's calendar.
• December 17, 2026: outside date for the Disney deal to close, unless the parties agree otherwise.

What happens to users, chats and data

Character.AI says its privacy and security practices are unchanged and that users can delete their account or export their data. Its help center says a data export can take 3 to 4 weeks, and the download link is valid for 7 days. Its privacy policy says it may disclose certain information in connection with a merger, sale of company assets, financing or acquisition.

The company told the court it does not believe its roughly 163 million current and past users are creditors. In an interim order, the court allowed the notice of the case to be published on the case website and Character.AI's blog, with known creditors served under the court's rules. Character.AI says it will notify subscribers in advance of changes to paid features.

What attorneys general are asking of any buyer

On October 14, 2026, a coalition of attorneys general filed a notice in the case listing protections any buyer should adopt. New York's attorney general announced it as a coalition of 40 attorneys general, and Florida joined the notice on October 20. Each state reserves the right to seek a consumer privacy ombudsman or to object to the sale. The requests include:

• Age checks that do not rely only on self-declared birth dates, and continued limits on minors' access to open-ended chat.
• Crisis-response protocols that cannot be defeated with a simple click-through.
• Removal of characters that pose as licensed professionals.
• A privacy program, opt-outs from targeted advertising, and no use of chats for training or ads beyond what users and parents validly agreed to.
• Continued access for users to their data, and a chance to delete it before any sale of that data.

Other government action

The company told the court that a multistate group of attorneys general, which it says grew to 46 states and territories, began investigating it in November 2025, and that it is negotiating a consent order with the group. It hopes to reach a resolution during the Chapter 11 case. Kentucky's attorney general and Pennsylvania's Department of State have sued the company; their claims are allegations. No FTC filing appears on the case docket as of October 21, 2026.