Disney lined up jobs for most of Character.AI's employees weeks before the AI chatbot company filed for bankruptcy. A filing in Delaware bankruptcy court shows Disney agreed to hire up to six key employees, including the CEO, and to make offers to "at least sixty" others. Disney put the annual cost of roughly 65 hires at about $60 million in salary, bonuses and stock. Bloomberg spotted the document, and TechCrunch reported it on October 18.
The deal was signed on September 18, the same day Disney named Karandeep Anand, then Character.AI's CEO, as its first chief technology officer. According to the filing, nearly all of the employees who got offers accepted. Character Technologies, the company behind the app, filed for Chapter 11 on October 12. That process shields a company from creditors while a judge oversees a restructuring or sale, as we explained when Getty Images announced its own Chapter 11 plan.
What Disney gets for $20 million
Disney isn't buying Character.AI. It is paying $20 million for a perpetual, non-exclusive license to some of the startup's technology, including the code it uses to train models, run safety systems and serve responses. Because the license isn't exclusive, Character.AI or a future owner can keep using the same code.
The contract spells out what Disney does not get: the app, the brand, the domains, user data, what people type into chats, the replies they receive, training data and finished models. On top of salaries, Disney set aside a $30 million retention pool and expects pay and retention to reach about $180 million over three years. That is nine times what it is paying for the license.
Anyone can still outbid Disney
Disney is the stalking horse bidder, meaning its offer sets the floor for the sale. A rival has to bid at least $21.7 million: Disney's $20 million, the $700,000 break-up fee Disney collects if it loses, and another $1 million.
Bids are due November 20 at 5 p.m. Eastern. If any arrive, the auction is set for November 23, with a court hearing on November 24. A different winner could interview the employees who moved to Disney and offer jobs to up to 80% of those willing to talk. In the meantime, those employees are helping Character.AI keep the platform running, through February 18, 2027, at the latest.
What happens to the app and its users
Character.AI is still online. In an October 12 update, the company said paid subscriptions remain active, billing hasn't changed and subscribers will get advance notice of any change to paid features. Users can delete their accounts or export their data from the app or website.
Whether the service survives depends on a buyer for everything Disney left behind. The company says that if no bid keeps the platform running, it will shut down. It hasn't said what would happen to stored conversations in that case, or what terms a buyer would have to accept. That matters because people tell chatbots very personal things, and research from IMDEA Networks found that six of nine AI assistants send chat data to ad trackers.
Why it collapsed
Character.AI had 20 million monthly users by October 2024, according to TechCrunch. In court papers, it says the service was expensive to run and that those costs, together with potential liability from lawsuits and scrutiny from regulators, left it unable to generate enough cash. Starting in August 2025, an investment bank approached about 28 possible buyers and investors. Only one proposal came back, and the company didn't consider it workable. Interested parties said the legal and regulatory overhang was too great.
Much of that overhang involves minors. In 2024, a Florida mother sued the company over the death of her teenage son. Texas also opened an investigation into how the platform protected children. Character.AI stopped allowing minors in October 2025, and in January 2026 it and Google reached agreements in principle to settle the first family lawsuits. Kentucky and Pennsylvania have sued as well, Straight Arrow News reports.
Disney knew the platform well. In September 2025 it sent Character.AI a cease-and-desist letter demanding it remove chatbots based on Disney characters. Google used a similar playbook in August 2024, licensing Character.AI's models in a deal TechCrunch valued at $2.7 billion and bringing back founders Noam Shazeer and Daniel De Freitas.
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