Character.ai, the company behind a popular AI companion app, has filed for Chapter 11 bankruptcy protection. In court documents, the startup cited high development and growth costs as key factors, along with potential litigation and regulatory challenges. The platform allows users to engage in one-on-one conversations and roleplay with AI characters, but these operations have proven financially unsustainable.
The company has faced several lawsuits, including a January complaint from the state of Kentucky alleging that the platform exposed children to self-harm risks. CEO Colin Adams stated that a court-supervised sale offers the best chance to maximize value for all stakeholders. Character.ai has already secured a $20 million deal with Disney, which will license some of its intellectual property and provide transition services.
In 2024, Google signed a non-exclusive licensing agreement for Character.ai's large language model technology and rehired its co-founders. However, one of the co-founders, Noam Shazeer, later left Google to join OpenAI. Character.ai plans to continue operating its platform during the sale process, though it acknowledges the possibility of winding down operations.