Character.ai Maker Files for Chapter 11 Bankruptcy

Character Technologies, the company behind the artificial-intelligence platform Character.ai, is filing for Chapter 11 bankruptcy.

The AI entertainment company said Monday that it had commenced voluntary bankruptcy proceedings in Delaware to facilitate a sale of most or all of its assets.

Disney will serve as a stalking horse bidder for a non-exclusive perpetual license of some of Character’s intellectual property, the company said. Disney also agreed to provide $20 million and transition services from former Character.ai employees who now work at the entertainment conglomerate.

Character’s former chief executive, Karandeep Anand, was hired as Disney’s first-ever chief technology officer in September, bringing along several technical staff members from the startup.

Anand’s successor, CEO Colin Adams, said the decision to pursue bankruptcy comes after efforts to steer the business through “significant legal, regulatory and operational headwinds.”

“After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the company with the best opportunity to maximize value for all stakeholders,” Adams said.

The company said its agreement with Disney is subject to higher or better offers, and that it expects to complete any asset sales in late November or early December.

The company plans to keep operating the Character.ai platform through the sale process, though it said the platform may be wound down if the sale process does not lead to a proposal that would support its continued operations.

Character.ai, which lets users interact with AI avatars that include fictional characters and real public figures, had come under scrutiny for the platform’s effects on teen mental health.

Families of teenagers who harmed themselves or died by suicide in at least four states had filed lawsuits against the company and Google, which in 2024 paid $2.7 billion to license Character’s technology and hire the startup’s original co-founders. Google and Character agreed to settle those lawsuits earlier this year.