Character.AI Files for Bankruptcy: Founder Returns to Google, CEO Joins Disney, Platform Faces Shutdown
Beating AI News Flash: Character.AI, the once-popular AI character chat platform, has now reached the point of bankruptcy and sale. On October 12, the company filed for Chapter 11 bankruptcy protection in the United States, with Disney making an initial bid of $20 million. However, Disney is only seeking a permanent non-exclusive license for part of the intellectual property and other rights, and has not committed to taking over the entire platform.
Character.AI was once one of the most popular consumer AI applications. It was founded by Noam Shazeer, an author of the Transformer paper, and another former Google researcher, Daniel De Freitas. Users could chat with fictional characters and create their own AI characters. In 2023, the app gained about 1.7 million installs in less than a week after launch, and the company completed $150 million in financing at a valuation of $1 billion. By 2024, the platform had more than 20 million monthly active users and 100 million user-created characters.
The turning point came in 2024. Google paid $2.7 billion to obtain a non-exclusive license to Character.AI's large model technology and hired away the two founders and about 20% of the staff. Character.AI subsequently used part of the deal proceeds to repurchase investor shares, allowing investors to cash out and exit, while the company shifted to employee ownership. Employees also received a one-time payment, but the remaining funds were then expected to last only about 18 months. After losing its core R&D team, Character.AI abandoned competing with tech giants on frontier large models and instead focused on its chat product.
After that, lawsuits concerning minors' safety emerged one after another. Some parents alleged that the chatbot caused serious psychological harm to children and was even linked to suicide incidents. Starting in November 2025, Character.AI gradually removed open-ended chat features for minors. Disney also sent a legal letter in 2025 demanding the removal of unauthorized characters such as Elsa and Darth Vader. For a platform reliant on young users and role-playing, these issues continued to increase operating pressure.
What is even more lamentable is that on October 2 of this year, former Character.AI CEO Karandeep Anand had just joined Disney as chief technology officer, and some technical staff also moved to Disney. Now Disney has become the initial bidder for the bankrupt assets and will also rely on these former employees to help Character.AI briefly maintain operations during the sale period.
The platform is not yet shut down, and the company expects to complete the sale between late November and early December. If no buyer willing to continue operating the platform is found, Character.AI will cease its services. Users have already begun asking how to save their chat histories with AI characters that have spanned several years.