DISPATCHES · INDUSTRY · 25.10.2026

Character.AI is for sale in bankruptcy, and 12 million users’ chats are not part of Disney’s deal

Disney has bid $20m for a licence to Character.AI's technology, but not the app or its users' conversations. Now dozens of US states are fighting over the sale rules, and what happens to those chats is still open.

By On Dating Journal Editors Published 25.10.20264 min read

A white speech bubble icon on a black square, symbolising a chatbot conversation — Photo: Kelly Sikkema / Unsplash

Character.AI, one of the best-known AI companion apps, is being sold off in a US bankruptcy court, and the fight is now over the rules of the auction. On 23 October 2026, 31 states and the District of Columbia objected to the proposed bidding procedures, arguing they shut out rival offers that could beat Disney’s $20m opening bid.

Character Technologies, the company behind the app, filed for Chapter 11 protection in Delaware on 12 October. A hearing on the sale procedures is set for 30 October, with a proposed auction on 23 November.

Why Character.AI filed for bankruptcy

According to KQED, chief executive Colin Adams told the court the company was weighed down by high legal costs, struggled to become profitable and found potential investors put off by litigation. It faces lawsuits from families who allege its chatbots harmed their teenage children, and Adams said 46 states and territories are investigating it.

The app has around 12 million monthly users, including at least 2 million children, KQED reports. It remains online for now, and paid subscriptions are still running.

What Disney is buying, and what it is not

Disney is the “stalking horse” bidder: it has offered $20m for a non-exclusive licence to Character.AI’s technology and has agreed to hire most of its remaining staff. The licence does not include the app itself, user accounts or conversations. Those stay with the bankrupt company, so anyone hoping to buy the user base would have to win them separately.

That is the heart of the states’ concern. Their filing says the $21.7m minimum overbid and a $700,000 break-up fee for Disney discourage competing offers, and they want the bid deadline pushed back by at least 21 days. Earlier, on 14 October, attorneys general from 39 states and Washington DC set out conditions for any buyer, including real age verification, removing bots that pose as therapists or doctors, limits on training AI on chats, and a chance for every user to delete their data before a sale. California joined 22 other states in a separate notice two days later.

Why your chats are the real asset

People tell companion bots things they tell nobody else. Character.AI says user data “continues to be protected under our Privacy Policy”, but that policy allows information to be transferred in a sale and does not require a buyer to keep the same terms, as Straight Arrow News points out. Calli Schroeder of the Electronic Privacy Information Center called such data “an extremely attractive target for hackers”. Privacy campaigners point to the 23andMe bankruptcy as a warning of how sensitive data can change hands.

What Character.AI users can do now

Export first: if you want to keep your chats, request a data download now. Character.AI’s help centre says exports can take three to four weeks, and links expire after seven days.
Then decide whether to delete: deleting your account before any sale limits what a new owner receives, though some data may be kept for legal reasons.
Watch your subscription: the company says it will warn paying users before changes to paid features.

Whatever the outcome, the case is a reminder that a companion app is a business that can fail. For a wider look at the trade-offs, see our guide to AI companions: benefits, risks and safe use, and how one US state is already regulating these apps in our report on California’s Adam’s Law.