Character Technologies, the U.S. operator of the AI character chat service Character.ai, announced on October 12 (local time) that it had voluntarily filed for Chapter 11 in Delaware federal bankruptcy court. The filing is intended to let the company sell its assets while continuing to operate the service. Chapter 11 is a court-supervised process for selling all or substantially all of a company’s assets.

Before filing, Character Technologies signed an agreement with Disney Worldwide Services, a subsidiary of Walt Disney. Disney will receive a nonexclusive, perpetual license to some of Character.ai’s intellectual property and claims. As the stalking horse bidder, Disney submitted the opening terms and set a baseline for the sale. The consideration is $20 million plus transition support services, provided by former Character.ai employees hired by Disney. Under Section 363 of the Bankruptcy Code, a higher or otherwise better offer would take precedence. The company expects to continue operating the service safely for a limited period while pursuing the sale.

Character Technologies also asked the court to approve a bidding process. The platform will close in stages if no buyer is found who intends to keep it running. CEO Colin Adams said in a company statement that the board had comprehensively reviewed its options and concluded that a court-supervised sale was the best opportunity to maximize value for all stakeholders.

The company published a user FAQ on its official blog, saying that all services remain available for now. Paid subscriptions remain active, and billing will not change for the time being. Subscribers will be notified in advance of any changes affecting paid features. The company says user data remains protected under its privacy policy and that its privacy and security practices are unchanged. Users can delete their accounts and export their data through the app or website.

Character.ai is an AI entertainment platform founded in 2021 by former Google engineers. In August 2024, Google signed an agreement to obtain a nonexclusive license to the company’s technology, and co-founders Noam Shazeer and Daniel De Freitas moved to Google. In October of that year, a family sued Character.ai and Google, alleging that their 14-year-old son died by suicide because of his dependence on Character.ai. Research reports have also pointed to links between excessive, long-term use among teenagers and lower well-being. In January, Meta announced that it would stop offering AI character conversations to teenage users.

Character Technologies, the U.S. operator of the AI character chat service Character.ai, announced on October 12 (local time) that it had voluntarily filed for Chapter 11 in Delaware federal bankruptcy court. The filing is intended to let the company sell its assets while continuing to operate the service. Chapter 11 is a court-supervised process for selling all or substantially all of a company’s assets.

Before filing, Character Technologies signed an agreement with Disney Worldwide Services, a subsidiary of Walt Disney. Disney will receive a nonexclusive, perpetual license to some of Character.ai’s intellectual property and claims. As the stalking horse bidder, Disney submitted the opening terms and set a baseline for the sale. The consideration is $20 million plus transition support services, provided by former Character.ai employees hired by Disney. Under Section 363 of the Bankruptcy Code, a higher or otherwise better offer would take precedence. The company expects to continue operating the service safely for a limited period while pursuing the sale.

Character Technologies also asked the court to approve a bidding process. The platform will close in stages if no buyer is found who intends to keep it running. CEO Colin Adams said in a company statement that the board had comprehensively reviewed its options and concluded that a court-supervised sale was the best opportunity to maximize value for all stakeholders.

The company published a user FAQ on its official blog, saying that all services remain available for now. Paid subscriptions remain active, and billing will not change for the time being. Subscribers will be notified in advance of any changes affecting paid features. The company says user data remains protected under its privacy policy and that its privacy and security practices are unchanged. Users can delete their accounts and export their data through the app or website.

Character.ai is an AI entertainment platform founded in 2021 by former Google engineers. In August 2024, Google signed an agreement to obtain a nonexclusive license to the company’s technology, and co-founders Noam Shazeer and Daniel De Freitas moved to Google. In October of that year, a family sued Character.ai and Google, alleging that their 14-year-old son died by suicide because of his dependence on Character.ai. Research reports have also pointed to links between excessive, long-term use among teenagers and lower well-being. In January, Meta announced that it would stop offering AI character conversations to teenage users.