Character.ai files for bankruptcy following lawsuits alleging ties to teen suicides

Artificial intelligence chat startup Character.ai— which has faced a wave of claims that its app contributed to mental health issues and suicides among teens — has filed for Chapter 11 bankruptcy.

Character.ai lets users message with a range of chatbots, often modeled after celebrities and fictional characters, or create their own. Its bots often respond with human-like conversational cues, adding references to facial expressions or gestures into their replies.

The company said it plans to seek a court-supervised sale by the end of the year in hopes of keeping the platform running long-term.

Disney has already set itself up as a bidder for the company’s assets, agreeing to pay $20 million for some of the company’s intellectual property and to provide transition services via former Character.ai employees it has hired. The deal will allow Character.ai to keep its platform operational at least during the bankruptcy process. Karandeep Anand, who was brought on as Character.ai’s CEO last year to help improve its reputation on safety, joined Disney as Chief Technology Officer last month.

Former Google AI staffers Noam Shazeer and Daniel de Freitas launched Character.ai in 2021. Both founders have since returned to Google. Within just over a year, the company said it had reached a $1 billion valuation, following a $150 million funding round.

Character.ai has between $50 million and $100 million in assets, according to its bankruptcy filling.

In 2024, amid growing concerns about human dependance on AI chatbots, Florida mother Megan Garcia sued Character.ai, alleging that the platform was responsible for the suicide death of her 14-year-old son Sewell Setzer III. Other families filed a string of additional lawsuits, accusing the platform of providing sexual content to their children or encouraging suicide, self-harm or violence. Character.ai agreed to settle five cases, including Garcia’s, earlier this year.

Matthew Bergman, founder of the Social Media Victims Law Center, which represents several of the families who sued Character.ai, declined to comment on the bankruptcy filing.

Character.ai made a number of safety changes in the wake of the lawsuits, including adding pop-ups directing users to mental health resources. It also blocked users under 18 from engaging in back-and-forth conversations with bots, instead allowing them only to create one-time stories or videos.

The company also faced a probe into its safety practices by Senate Democrats last year, along with other AI “companion” apps. Character.ai was also in competition with chatbots from much larger players, such as ChatGPT and Google’s Gemini.

When Anand took over as CEO of the then-70-person company last year, he told CNN he saw a future for the company in interactive, personalized AI entertainment — where users could co-create stories and conversations with AI characters for fun. He told CNN at the time that the company was “doubling down on entertainment, doubling down on trust and safety.”

Character.ai says that if a sale is not completed, the platform will be “wound down.”

“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds,” Colin Adams, CEO of Character.AI, said in a statement, adding that the company’s board reviewed its options and “determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders.”