Character.AI's bankruptcy: what's for sale and what the states want

Disney holds the stalking horse slot at $20M, buying non-exclusive rights to Character.AI's software and patents. Its term sheet carves out the app, the brand, user data, everything users typed or received, and trained models. Rival bids remain possible until the deadline.

According to TechCrunch, both assets and liabilities fall somewhere between $50M and $100M. With non-exclusive rights and no user records, the opening deal leaves the company's most sensitive material untouched. See stalking horse bids for data.

On 2026-10-14, AGs from 39 states plus DC filed a 28-page notice listing nine conditions a buyer would have to accept. Among them: no training on chat content beyond what users agreed to. The states also kept open the option of asking for a consumer privacy ombudsman.

The states point to Character.AI's own privacy policy. It warns that user data, chat transcripts, voice recordings, images and videos among it, may be handed over if the company or its assets are sold.

Here the risky asset is what users said to a chatbot, which is very different from staff running a business. That makes Character.AI a customer data case in the mould of 23andMe, a separate category from the internal work archives AI data buyers usually chase.

Wind-down buyers draw a similar boundary. SimpleClosure accepts code, Slack, email and documents but excludes sensitive HR and health files. For a company selling its own internal archive, the case to study is Spirit Airlines.

• Whether bidders other than Disney appear by 2026-11-20
• Whether a later bid seeks an exclusive license or a full sale
• Whether any bid reaches user data, and how the states respond
• Whether the court appoints a privacy ombudsman