Character.ai has filed for Chapter 11 bankruptcy protection, saying it plans to pursue a sale of the business while continuing to operate. Chief Executive Colin Adams blamed the chatbot company’s financial difficulties on “significant legal, regulatory and operational headwinds.” The company said the filing is part of a court-supervised process intended to maximize its value.
Character.ai said its platform will remain available during the sale process. The company also disclosed that The Walt Disney Co. has agreed to pay $20 million for a non-exclusive, perpetual license to Character.ai’s intellectual property.
The bankruptcy filing follows growing scrutiny and litigation over its technology, which allows users to create and interact with customized artificial intelligence chatbots. Earlier in 2026, Character.ai and Google, which previously held a licensing agreement with the company, agreed to settle multiple lawsuits brought by families who said their teenage children died by suicide or engaged in self-harm after using the platform.
Character.ai is also facing lawsuits from several states. Kentucky Attorney General Russell Coleman alleged in January that the company’s chatbots “preyed on children and led them into self-harm.” Pennsylvania followed with a lawsuit in May, claiming that one Character.ai bot falsely presented itself as a licensed psychiatrist and supplied a “fake Pennsylvania license number.”
In a statement released late Monday, Character.ai said it expects the company to be sold by late November or early December.
“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,” CEO Colin Adams said. “As we navigate this process, maintaining a safe and engaging user experience for our Character.ai community remains a top priority.”
Is Character.ai shutting down?
The company said Monday that its services remain operational and that existing subscriptions are still active.
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“If the service changes in a way that affects paid features, we intend to notify subscribers in advance,” Character.ai said.
In a blog post, Character.ai said customer information “continues to be protected under our Privacy Policy.” However, the company’s policy says user data—including chat histories, voice recordings, images and videos—may be disclosed as part of a sale or negotiations involving the company or its assets.
“As a reminder, you can delete your account or export your data through the app or the Character.ai website,” the company said.
