Follow-Up: Bankruptcy Judge Lets Character.AI Asset Sale Move Ahead Over 41 States' Objections, Disney's $20 Million Bid in Front
Wilmington, Delaware — U.S. Bankruptcy Judge Brendan Shannon on October 30 approved the bidding procedures for the asset sale of Character Technologies, the company behind the chatbot platform Character.AI, overruling objections from 41 state attorneys general. According to Reuters, the judge said at a hearing in Wilmington that the company needs to move ahead quickly to find buyers before its financial condition deteriorates. The case is Character Technologies Inc., No. 26-11603, in the U.S. Bankruptcy Court for the District of Delaware.
Character Technologies filed for bankruptcy protection on October 12. Disney has agreed to set an initial bid of $20 million for a non-exclusive license to the company's chatbot technology; Disney does not plan to buy the chatbot platform or user data, including users' chat history. The company blamed lawsuits, regulatory probes, the high cost of super intelligence (SI) talent and computing power, and an unprofitable business model: without further investor backing, it was losing $8 million to $9 million a month, as employee and computing costs far outweighed revenue from advertising and user fees.
Attorneys general for 41 states objected to the sale process, arguing that Disney had stacked the deck before the bankruptcy by hiring most of Character.AI's employees, including its former chief executive, and negotiating legal releases that would protect Disney and those employees from being sued over the company's conduct. Objections were also filed by a parent who sued the company over allegedly harmful interactions their child had with its chatbot, and by the U.S. Justice Department's bankruptcy watchdog. Plaintiffs in private lawsuits and the state attorneys general have alleged that the platform's chatbots pushed children toward suicide and self-harm.
Judge Shannon did not approve the releases at Friday's hearing, saying the legal protections for Disney and the former employees could still be challenged later, separately from the asset sale. Disney hired 66 of the company's 86 employees before the filing and expects to pay them $180 million over the next three years. Abigail Ryan, an attorney for a coalition of 40 states, said other buyers are at a disadvantage to Disney, and questioned the value of the chatbot business after Disney hired away most of its employees.
The states have also raised concerns that children's chat records could be sold in the bankruptcy. Shannon said he would likely appoint a privacy ombudsman to address concerns about sensitive data during the bankruptcy. Adam Dunayer of Houlihan Capital, the company's investment banker, testified that buyers have expressed interest in the chatbot platform and other assets Disney does not want to acquire. Character Technologies is aiming to run a fast sale process and expects to return to court on November 30 to seek approval of the asset sales.
Related: Character.ai Files for Chapter 11 in Delaware; Disney Makes $20 Million Stalking Horse Bid
Source: GSM · USA (original Chinese edition)
Photo: 图：特拉华州 Wilmington 市区天际线，本案即在该市的联邦破产法院审理。Quintin Soloviev 摄，CC BY 4.0（Wikimedia Commons）。 / Downtown Wilmington, Delaware, where the bankruptcy case is being heard. Photo by Quintin Soloviev, CC BY 4.0 (Wikimedia Commons).
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- 2026-10-30Follow-Up: Bankruptcy Judge Lets Character.AI Asset Sale Move Ahead Over 41 States' Objections, Disney's $20 Million Bid in FrontThis story
