HomeUpdates31 states and DC object to Character.AI’s Disney sale rules

NEWS · Published 2026-10-25

31 states and DC object to Character.AI’s Disney sale rules

A man at a kitchen table in the early morning reading a long document on his phone beside a mug of coffee and a newspaper

Attorneys general from 31 states and the District of Columbia have asked the bankruptcy court to reject the rules Character.AI proposed for selling itself, saying they favour Disney and could keep a better offer from winning. They also want the company to tell people about the sale on the Character.AI app and website itself, not only on its blog (court filing). The objection was filed on October 23, 2026, ahead of a hearing on October 30. The app is still running.

What happened

Character.AI’s parent, Character Technologies, filed for Chapter 11 bankruptcy on October 12 and proposed a court-supervised sale, with Disney as the first bidder, or “stalking horse”, at $20 million (see our first update). Before an auction can happen, the court has to approve the rules for bidding. Those rules are what the states object to.

The filing (Doc. 66 in case 26-11603 in Delaware) is signed by 31 states and DC. PPC Land, which reported it first, counts the group as 32 (PPC Land). The states say the case arises largely from children’s use of the app, and that 46 states and territories are investigating the company. Their main points:

  • The bar for a rival bid is too high. A rival has to offer at least $21.7 million: Disney’s $20 million, plus a $700,000 break-up fee (3.5%) Disney would get if it loses, plus another $1 million. Because the company keeps a $5.5 million non-refundable payment Disney has already made, the states say any bid above about $15.2 million would leave the estate better off.
  • The timetable favours Disney. Rivals would have to close by November 30, while Disney has until December 17.
  • Rivals get little access. Only five key employees would have to be available to rival bidders, for up to 20% of their time. A winning rival would also have to release Disney from claims to get transition services, and bids must be all cash.
  • Most of the team has already gone. The filing says 66 of about 86 full-time employees have moved to Disney, 18 active employees remain and 8 are expected to stay.
Three official Character.AI App Store screenshots: the character creator, a memory screen showing what a character remembers, and a grid of characters to browse
Character.AI’s character creator, memory screen and character library. Under Disney’s deal, the app and people’s chats stay with the bankrupt company, PPC Land reports. Image: official Character.AI App Store screenshots, © Character Technologies, Inc., shown to illustrate the app (App Store listing).

What the states are asking for

The states want a fairer auction and a clear warning for the people who use the app. They asked the court to:

  • Tell people on the platform. A plain-language notice of the sale posted “on the Character.AI platform itself, not only on the Debtor’s blog and community pages”.
  • Give bidders more time. Push the bid deadline back by at least 21 days.
  • Let objections wait for a winner. Move the deadline to object to the sale until after the winning bidder is named.
  • Cut Disney’s protections. Deny or reduce the break-up fee, and drop findings that Disney acted in good faith.

The states also reserve the right to ask for a consumer privacy ombudsman, a court-appointed official who reviews what happens to personal data in a sale. They point out that under the transition services agreement, Disney staff could have access to the personal data of people who use Character.AI (court filing).

The dates to watch

The company’s proposed schedule, as set out in the filing, runs:

  • October 30, 10:00 a.m. Eastern: hearing on the bidding rules.
  • November 9: deadline for another stalking-horse bidder.
  • November 13: deadline to object to the sale.
  • November 19: meeting of creditors.
  • November 20: bid deadline.
  • November 23: auction, if there are rival bids.
  • November 24: sale hearing.

If the court agrees with the states, the bid deadline would move by at least three weeks and the later dates would shift with it. You can follow new filings on the case docket (ElevenFlo).

What it means for you

Nothing changes in the app yet, but where your chats end up depends on this sale. PPC Land reports that Disney’s licence would not include the data and chats of people who use Character.AI, or the app itself, which stay with the bankrupt company (PPC Land). The filing says the company had about 12 million people using it each month, $57 million in cash, and was spending $8 million to $9 million a month.

  • If you use Character.AI, keep chatting if you like, but save anything you would hate to lose. Copy your own characters’ descriptions and greetings, and screenshot conversations that matter.
  • If you are thinking of leaving, our Character.AI alternatives guide compares apps on price, age rating and features, and our Talkie alternatives guide covers voice and story apps.
  • If you pay for c.ai+, check your App Store or Google Play subscription settings so you know when it renews.

If what you valued most was a character you built and kept coming back to, Duple takes a different approach on iPhone: you design one companion or several, choosing their look and personality, and they remember your conversations and send generated selfies. Duple Lite is free by default, and Duple Plus costs $6.99 a week, $14.99 a month or $69.99 a year, per its App Store listing. It is text chat only, with no live voice, and there is no public character library.

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