AI Companion Startup Character.ai Files for Chapter 11 Bankruptcy

Summary

Character.ai, which operates a large AI companion platform for one-on-one conversations and roleplay with AI characters, filed for Chapter 11 bankruptcy protection in Delaware. In court filings, the company said the platform had become costly to develop and grow as AI entertainment evolved, while potential litigation liabilities and regulatory engagement weakened its ability to generate enough cash flow. The company has faced chatbot-safety lawsuits, including a January case filed by Kentucky alleging that the platform preyed on children and contributed to self-harm. Character.ai said a court-supervised sale offers the best chance to maximize value for stakeholders. Disney has agreed to act as the stalking-horse bidder, proposing $20 million to license some of Character.ai's intellectual property and provide transition services through former employees it hired. Google previously signed a non-exclusive license for Character.ai's large-language-model technology in 2024 and rehired its co-founders, while providing additional funding for the startup. Character.ai expects the platform to continue operating with minimal disruption during the sale, but warned that it could ultimately be wound down.