Chatbot startup Character.AI files for bankruptcy, and Disney is first in line for key assets

Character.AI, the chatbot startup founded by erstwhile Google researchers, has submitted for bankruptcy.

The California-based business stated it had initiated a voluntary Chapter 11 procedure in Delaware to prosecute a court-supervised transaction of all or substantially all of its assets.

Character.AI, which lets users create personalized AI bots, stated its phase would remain online during the sale process, which it expects to complete by delayed November or first December.

The business has accepted to let Disney Worldwide Services, an affiliate of the Walt Disney Company, act as the beginning bidder for a non-exclusive, perpetual licence to certain Character.AI intelligent asset and claims.

Disney stated it would pay $20 myriad and provision passage services using erstwhile Character.AI workforce it has hired. Other possible buyers can motionless create higher bids under the bankruptcy process. Last month, Disney hired erstwhile Character.AI CEO Karandeep Anand as its CTO.

Character.AI's CEO Colin Adams stated in a Monday declaration that it had taken steps to "sustain and improve" its endeavor amid "significant legal, regulatory, and operational headwinds."

"After a thorough assessment of our accessible alternatives, our commission resolute that this court-supervised transaction procedure provides us alongside the finest chance to maximize value for all of our stakeholders," the business stated in a blog post on Monday.

The startup stated paid subscriptions remain energetic and billing is unchanged for now. But it warned that if the transaction does not create a bid adequate to keep the phase running, it volition breeze downward the service.

Character.AI hit alongside lawsuits

Character.AI did not enchantment out the legal, regulatory, and operational pressures that led to the filing. But the business has faced expanding scrutiny complete the possible consequence of its AI companions on young users.

It announced final twelvemonth that it would ban under-18s from having open-ended conversations alongside its chatbots, following concerns concerning AI's effect on children and teenagers.

Prior to that, Character.AI had faced lawsuits from families who alleged its chatbots contributed to teenagers' mental-health crises. Earlier this year, Character.AI and Google accepted in regulation to settle multiple of those cases, including claims brought by families of teenagers who died by self-destruction or informed self-harm following using the chatbots.

One Texas lawsuit alleged that a Character.AI chatbot encouraged a adolescent to kill his parents complete limits on his display time. That case was among those the companies accepted in regulation to settle. The conditions were not disclosed.

The startup was founded in 2021 by former Google researchers Noam Shazeer and Daniel De Freitas. Google rehired the pair in 2024 and paid for non-exclusive entitlements to use Character.AI's technology, during the startup continued as a distinct company.

Character.AI stated its privacy and safety practices remain unchanged during the bankruptcy process.

It stated users can continue to admission its services and export their data or delete their accounts through its app or website.