Updated October 2026
Character.AI's bankruptcy: what is for sale and what the states asked for
On the table
Disney's stalking horse bid covers code and patents
Disney is the stalking horse bidder, offering $20M for a non-exclusive license to Character.AI's code and patents. The term sheet leaves out the app, the brand, user data, user inputs and outputs, and finished models. Other bidders can still come in before the auction.3
The filing reports assets and liabilities each between $50M and $100M. Because the license is non-exclusive and excludes the user records, the most sensitive part of the company is not in the stalking horse deal.2,3
| Fact | Value and source |
|---|---|
| Character.AI bankruptcy case | Chapter 11, Bankr. D. Del., No. 26-11603 (BLS), Judge Brendan L. Shannon; proposed bid deadline 2026-11-20, auction 2026-11-23, sale hearing 2026-11-24 |
| Character.AI stalking horse bid | Disney is the stalking horse bidder, paying $20M for a non-exclusive license to code and patents; the term sheet excludes the app, the brand, user data, user inputs and outputs, and finished models |
| Character.AI's size in the filing | Reported assets and liabilities each between $50M and $100M; the platform keeps running during the sale |
The states
Nine conditions from 39 states and DC
On 2026-10-14, attorneys general for 39 states and the District of Columbia filed a 28-page notice setting nine conditions for any buyer. One of them bars training on chat content beyond consented uses. The states also reserved the right to seek a consumer privacy ombudsman.4
Their concern starts with the company's own words. Character.AI's privacy policy says user data, including chat transcripts, voice recordings, images and videos, could be disclosed in a sale of the company or its assets.5
Why it is different
User chats are consumer data, not company records
This is a consumer data case. The sensitive asset is what individual users typed to a chatbot, not how employees ran the business. That puts it alongside other consumer-record sales, and apart from the internal email, Slack and document archives the buyers we list want.5
Earlier consumer cases show how differently these sales run. In 23andMe, 27 states and DC sued in June 2025 to block the sale of genetic data without consent, and five states were still opposed when the sale was approved. Those are disputes about customers' records, which is why we keep them apart from workplace archives.6
The wind-down buyers we list draw the same line from the other side. SimpleClosure says code, Slack, email and docs are in scope and sensitive employee and health records are excluded, and it reports typical data deals of $10K-$100K. Character.AI's chats are not a price comparable for any of that.7,8
For contrast, Spirit Airlines' sale is about the inside of a company: about 100M emails and 500M Teams items. Google is the successful bidder there; that sale was not approved as of mid-October 2026. If your company's own archive is the question, the match quiz shows which buyers take it.9,10
What to watch
The November dates
The open questions are practical ones. Watch whether bidders other than Disney appear by the bid deadline, whether a later bid is for an exclusive license or a full sale, whether any bid reaches user data, and whether the states press for an ombudsman. The dates to track are 2026-11-20 for bids, 2026-11-23 for the auction and 2026-11-24 for the sale hearing.1,4
FAQ
Questions, answered with sources
The proposed schedule sets the auction for 2026-11-23, after a 2026-11-20 bid deadline, with the sale hearing on 2026-11-24.1
Disney, at $20M for a non-exclusive license to code and patents.3
No. The term sheet excludes user data, user inputs and outputs, the app, the brand and finished models.3
Attorneys general for 39 states and DC filed a 28-page notice with nine conditions on 2026-10-14.4
That user data, including chat transcripts, voice recordings, images and videos, could be disclosed in a sale of the company or its assets.5
The filing reports assets and liabilities each between $50M and $100M.2
Every business is different, so this one is best talked through with the buyer you're working with. Their team goes over it with you before anything is signed.
Every business is different, so this one is best talked through with the buyer you're working with. Their team goes over it with you before anything is signed.
Before you sign
Questions to talk through with your buyer
Every business is different, so these are best talked through with the buyer you're working with. Their team goes over them with you before anything is signed.
Questions for this kind of business
- If our own product holds user conversations, how would the court and state attorneys general treat them in a sale?
- Does our privacy policy's sale clause cover licensing data for AI training?
- Is a consumer privacy ombudsman, court approval, or notice and a hearing needed?
- How do CCPA, GDPR, UK GDPR and state privacy laws apply, and is de-identified data still personal information?
Questions for any buyer
- Is the license exclusive, and for how long?
- Can you sublicense the data, and to whom?
- Which AI labs will receive it, and will you tell us?
- How long do you keep it, and how is it deleted?
- What is your liability cap, and who indemnifies whom?
- Will the contract ban re-identification of people in the data?
- Who removes personal data, by what method, and do we approve it first?