Character.AI is bankrupt. Disney wants the scraps for $20 million.

Character.AI, the chatbot platform that let users converse with AI personas, filed for Chapter 11 bankruptcy protection in the United States on Monday — two years after a Google licensing-and-hiring deal that Bloomberg said implied a valuation of about $2.5 billion. Disney Worldwide Services has emerged as the "stalking horse" lead bidder for certain assets at $20 million.

The bid — a non-exclusive perpetual license to some of the company's intellectual property, plus transition services from former employees Disney recently hired — sets the floor for an auction expected to conclude in late November or early December. The company listed estimated assets and liabilities of $50 million to $100 million each. The platform keeps running for now, but the filing says it will be wound down if no buyer agrees to operate it.

The fall is steep. Character.AI was valued at roughly $1 billion in March 2023 and at one point reported 28 million monthly active users; that figure has since slid to about 20 million. Former CEO Karandeep Singh Anand departed for Disney last month along with other staff. The company has also faced a slew of lawsuits amid mounting compute costs.

The Canadian angle: it's the defining cautionary tale of the AI boom's second act — massive usage, no sustainable business. It pairs with the AI-valuation anxiety already rattling markets and the IMF's warning that an AI-stock correction could threaten global financial stability.