Character.ai Files For Chapter 11 Bankruptcy Amid Costs, Litigation

Character.ai filed for Chapter 11 bankruptcy in Delaware on Monday, putting the AI companion platform under court supervision as it seeks a buyer amid rising development costs and litigation pressures.

The company said its service became too costly to develop and expand while potential legal liabilities and regulatory engagement reduced its ability to generate enough cash to continue in its current form.

Disney has agreed to serve as a stalking-horse bidder in the sale process, offering $20 million to license selected Character.ai intellectual property. Disney will also provide transition services through former Character.ai employees it has hired.

Character.ai CEO Colin Adams said a court-supervised sale gives the company the best opportunity to maximize value for stakeholders. The platform is expected to continue operating with minimal disruption during the process, although the filings say it could eventually be wound down.

The company faces several chatbot-safety lawsuits. In January, Kentucky sued Character.ai, alleging that the platform preyed on children and contributed to self-harm.