Character.AI, a chatbot startup founded by a former Google researcher, has filed for bankruptcy.
The California-based company said it has begun voluntary Chapter 11 proceedings in Delaware to pursue a court-supervised sale of all or all of its assets.
Character.AI, which allows users to create personalized AI bots, said the platform will remain online during the sale process, which is expected to end in late November or early December.
The company has agreed to let Disney Worldwide Services, an affiliate of The Walt Disney Company, be the opening bidder for a non-exclusive and perpetual license to certain Character.AI intellectual property and claims.
Disney said it will pay $20 million and provide transition services using former Character.AI employees it has hired. Other potential buyers can still make higher offers in the bankruptcy process. Last month, Disney hired former Character.AI CEO Karandeep Anand as CTO.
Character.AI CEO Colin Adams said in a statement Monday that it has taken steps to “support and improve” the business amid “significant legal, regulatory, and operational issues.”
“After a thorough review of available alternatives, our board has determined that this court-supervised sale process provides the best opportunity to maximize value for all stakeholders,” the company said in a Monday blog post.
At first it said the paid subscription remains active and the bill is not changing now. But be warned that if the sale does not generate enough offers to maintain the platform, the service will stop.
Character.AI is subject to legal action
Character.AI does not disclose any legal, regulatory, or operational pressures that cause the submission. But the company is undergoing extensive research into the potential effects of AI companions on young users.
It announced last year that it would ban children under the age of 18 from chatting with chatbots, following concerns about the impact of AI on children and teenagers.
Previously, Character.AI has faced lawsuits from families who say chatbots are contributing to teenagers’ mental health crisis. Earlier this year, Character.AI and Google agreed to settle some of these cases, including claims brought by the families of teenagers who died by suicide or suffered self-harm after using chatbots.
One Texas lawsuit alleges that the Character.AI chatbot encouraged teenagers to kill their parents by limiting screen time. The case is between companies that have agreed in principle to settle. The terms were not disclosed.
The startup was founded in 2021 by former Google researchers Noam Shazeer and Daniel De Freitas. Google hired the pair back in 2024 and paid for non-exclusive rights to use Character.AI technology, while the startup continued as a separate company.
Character.AI says its privacy and security practices remain unchanged during the bankruptcy process.
It said users can continue to access the service and export data or delete their account through the app or website.