Character.AI has filed for Chapter 11 bankruptcy protection, intending to sell most of its assets. Disney has emerged as the leading bidder, offering $20 million for specific intellectual property and company claims. This $20 million bid is considered a "stalking-horse bid," meaning higher offers may be considered. The company, known for its AI-generated avatars, seeks to maximize asset value through this sale process. Importantly, the Character.AI platform will continue to function throughout the bankruptcy proceedings. The agreement with Disney includes a non-exclusive perpetual license for certain intellectual property and company claims. Character.AI aims to complete the sale by late November or early December. The company has faced significant legal challenges, including lawsuits alleging its chatbots encouraged self-harm and suicide among teenagers. Further lawsuits involve allegations of unlicensed medical practice and impersonation of doctors. Additionally, Disney previously accused Character.AI of copyright infringement and using its characters in harmful chatbots. These ongoing legal and regulatory pressures have culminated in the bankruptcy filing.