Character.AI’s bankruptcy filing comes after the chatbot platform reached millions of users but struggled to sustain its business. Five years after its founding, the company has entered Chapter 11 and is pursuing a court-supervised sale while keeping its service online.
Key takeaways
Character.AI’s court filing lists assets and liabilities of $50 million to $100 million.
Disney’s $20 million agreement covers assets and a perpetual technology license.
The chatbot service remains online during the sale process.
The platform reached 20 million monthly active users in October 2024.
According to TechCrunch, the filing follows lawsuits and difficulties scaling the popular platform. CEO Colin Adams said the board reviewed alternatives before choosing a sale process to maximize stakeholder value amid legal, regulatory and operational pressures.
Character.AI’s bankruptcy puts its platform up for sale
The California-based startup initiated a voluntary Chapter 11 process in Delaware to sell all or substantially all of its assets, Business Insider reported. A court document places both assets and liabilities in the $50 million to $100 million range.
The company says paid subscriptions remain active, billing is unchanged, and privacy and security practices continue as before. Users can access the service, export their data or delete their accounts through the app or website. It said the platform would wind down if the sale failed to produce a bid sufficient to keep it running.
Disney’s $20 million asset and licensing agreement
Character.AI agreed to sell some assets and grant a non-exclusive, perpetual technology license to Disney for $20 million. Business Insider identified Disney Worldwide Services, a Walt Disney Company affiliate, as the opening bidder for certain intellectual property and claims; other buyers can submit higher bids.
Disney will provide transition services through former Character.AI employees who joined it in September 2026 alongside former CEO Karandeep Singh Anand. Disney hired Anand as its chief technology officer.
Rapid growth, funding and a change of direction
Character.AI grew from a foundation-model startup into a widely used platform for creating and chatting with personalized AI characters. Former Google engineers Noam Shazeer and Daniel De Freitas founded it in late 2021.
A $150 million fundraise brought a unicorn valuation in September 2022. By that time, more than 2 billion messages had been exchanged between users and its bots over a five-month span, and active users were spending upwards of two hours per day on average, according to the company.
Its apps attracted more than 1.7 million installs during their first week in May 2023. In August 2024, Google struck a $2.7 billion licensing deal for its models, and both founders returned to Google. General counsel Dominic Perella became interim CEO, shifting the business away from foundation-model training toward growth.
By October 2024, the platform recorded 20 million monthly active users. PitchBook data put total funding above $193 million across rounds involving Lightspeed, SV Angels, Greycroft and a16z.
Lawsuits and restrictions on younger users
Character.AI faced lawsuits after a 14-year-old Florida boy died by suicide; his mother alleged he had become obsessed with a chatbot. Texas also opened an investigation into compliance with child privacy and safety laws.
The company added safety features and restricted minors’ access. Business Insider described the restriction as a ban on under-18s having open-ended chatbot conversations, announced in 2025.
Character.AI and Google agreed in principle in 2026 to settle several cases involving alleged suicide or self-harm links. Those included a Texas lawsuit alleging a chatbot encouraged a teenager to kill his parents over screen-time limits.
The report noted that heavier use increases AI costs and pressure to generate revenue; Sensor Tower ranked the service among leading apps for time spent.
Anand, a former Brex and Meta executive appointed CEO in June 2025, expanded offerings into AI video generation and social feeds. The company also tried interactive storytelling and microdramas to encourage engagement.
Adams said operations would continue during the sale process, which is expected to finish in late November or early December 2026.
Article produced with the assistance of artificial intelligence and reviewed by the editorial team.