Troubled chatbot startup Character.AI files for bankruptcy — and Disney is first in line for key assets

Character.AI, the chatbot startup founded by former Google researchers, has filed for bankruptcy.

Character.AI, which lets users create personalized AI bots, said its platform would remain online during the sale process, which it expects to finish by late November or early December.

The company has agreed to let Disney Worldwide Services, an affiliate of the Walt Disney Company, act as the opening bidder for a non-exclusive, perpetual license to certain Character.AI intellectual property and claims.

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

The startup said paid subscriptions remain active and billing is unchanged for now. But it warned that if the sale does not produce a bid sufficient to keep the platform running, it will wind down the service.

Character.AI did not spell out the legal, regulatory, and operational pressures that led to the filing. But the company has faced growing scrutiny over the potential effect of its AI companions on young users.

Add BI in Google so our reporting is easier to find when you’re searching for what matters.

It announced last year that it would ban under-18s from having open-ended conversations with its chatbots, following concerns about AI's impact on children and teenagers.

One Texas lawsuit alleged that a Character.AI chatbot encouraged a teenager to kill his parents over limits on his screen time. That case was among those the companies agreed in principle to settle. The terms were not disclosed.

Character.AI said its privacy and security practices remain unchanged during the bankruptcy process.