Character.AI, the chatbot platform that lets people create and talk to AI characters, has filed for Chapter 11 bankruptcy.
The company filed a voluntary petition in the U.S. Bankruptcy Court for the District of Delaware on Oct. 12, according to court records. It is using the bankruptcy process to sell itself under court supervision.
In a blog post announcing the decision, the company said it had spent the past year trying to sustain its business amid "significant legal, regulatory, and operational headwinds." The company also said that the board reviewed its options and decided a court-supervised sale offered the best chance "to maximize value for all of our stakeholders."
"The Character.ai platform remains up and running," the statement added.
Character.AI estimated both its assets and its liabilities at between $50 million and $100 million, TechCrunch reported. According to the filing, the board formed a restructuring committee on Oct. 8 to weigh its options given the company’s cash flow, liquidity, and potential legal liabilities. The committee approved the bankruptcy filing four days later.
A rocky five years
Former Google engineers Noam Shazeer and Daniel De Freitas founded Character.AI in late 2021. The startup reached a $1 billion valuation in 2022 after raising $150 million. In Aug. 2024, Google struck a $2.7 billion deal to license its models, and both founders went back to Google.
Usage stayed high afterward. By October 2024, Character.AI had 20 million monthly active users, part of a fast-growing AI companion community, and Sensor Tower data cited by TechCrunch ranks it among the top AI apps by time spent.
Then the lawsuits started to come in.
One came from the mother of a 14-year-old Florida boy who died by suicide; she says he had become obsessed with one of the platform’s chatbots. Texas also opened an investigation into whether Character.AI followed child privacy and safety laws. The company settled some of the lawsuits, added safety features, and banned minors.
In its coverage of the bankruptcy, 404 Media argued that Character.AI’s money problems aren’t unusual. Many AI companies spend heavily on computing power without the revenue to support it. The distinction, though, 404 Media wrote, is that the big companies like Anthropic, Google, Meta, and OpenAI are "able to repeatedly get injections of new cash." Meta and Google can also use their advertising businesses to pay for their AI products.
Disney has agreed to buy some of Character.AI’s assets for $20 million, along with a non-exclusive, perpetual license to its technology, TechCrunch reported. Former Character.AI staff who joined Disney last month, including former CEO Karandeep Singh Anand, will help with the transition.
The statement on Character.AI's website said the sale should close in late November or early December. However, if no workable offer comes in, Adams told the outlet, the platform "will be wound down."
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