Character.AI Files for Chapter 11 Bankruptcy After Five Years

Character.AI has filed for Chapter 11 bankruptcy, about five years after its founding. The company lets users create AI characters and converse with them. It cited legal, regulatory and operational challenges.

In a court document, Character.AI reported assets and liabilities between $50 million and $100 million. It has agreed to sell some assets to Disney for $20 million and grant the company a non-exclusive, perpetual license for its technology. Disney will provide transition services through former Character.AI employees who joined Disney last month, along with former Character.AI CEO Karandeep Singh Anand.

CEO Colin Adams said the company would continue operating during the court-supervised sale process, which is expected to close in late November or early December. He said there is not yet a bid for the assets or a buyer. Adams wrote that the platform could be wound down if the process does not produce an actionable proposal to continue operations.

Founded in late 2021 by former Google engineers Noam Shazeer and Daniel De Freitas, Character.AI raised $150 million in September 2022 at a unicorn valuation. In August 2024, Google struck a $2.7 billion deal to license its models, and the two founders returned to Google. Character.AI later faced lawsuits, including one following the suicide of a 14-year-old Florida boy; his mother said he had become obsessed with a chatbot on the platform. The company settled some lawsuits, added safety features and banned minors. It reported 20 million monthly active users by October 2024.