Character.AI, the chatbot-character platform, has filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. According to court filings seen by TechCrunch, the company's assets and liabilities both fall between $50 million and $100 million. The filing comes almost exactly five years after the company was founded in late 2021.
Under the same arrangement, Character.AI has agreed to sell part of its assets to Disney for $20 million and to grant Disney a non-exclusive, perpetual technology license. A group of former employees who left in September to follow former CEO Karandeep Singh Anand to Disney will provide transition services for the deal.
A court-supervised sale, with the platform staying up for now
Current CEO Colin Adams says the board concluded that a sale under court supervision offers the best chance of maximizing the company's value.
“the court-supervised sale process provides the Company with the best opportunity to maximize value”
The sale is expected to wrap up in late November or early December. What Disney is paying $20 million for is “part of the assets”; no one has yet bid for the platform as a whole. The company says it will keep operating during the sale, but Adams added a caveat:
“If such a bid is unavailable, however, the platform will be wound down”
In other words, the fate of the app that users open every day depends on whether anyone steps in over the next month or so. The reporting does not say which assets Disney is taking or which technology the license covers, and the company has not made the details of the transaction documents public.
Five years, a few turning points
Lining up the company's milestones, the decline starts with the 2024 licensing deal.
Late 2021: Two former Google engineers, Noam Shazeer and Daniel De Freitas, founded Character.AI. Shazeer is one of the authors of the Transformer paper, and training its own foundation models was the company's original selling point.
September 2022: The company raised $150 million at a valuation above $1 billion. The figures disclosed at the time: users had sent more than 2 billion messages in five months, and active users spent more than two hours a day on average. In May 2023, the mobile app passed 1.7 million installs in its first week.
August 2024: Google paid $2.7 billion for a model license, and the two founders returned to Google with part of the team. General counsel Dominic Perella became interim CEO, and the company said it would stop training foundation models and focus on growth. After that, Character.AI went from a company with its own models to a company building products on other people's models. In October that year, monthly active users reached 20 million. Shazeer later left Google for OpenAI this June, a footnote of its own.
June 2025: Anand, a former executive at Brex and Meta, became CEO and rolled out AI video generation and a social feed. More recently the company tried interactive stories and short micro-dramas to keep users around longer; the reporting concludes that none of these efforts made the economics work.
September this year: Anand left for Disney with a group of staff. On October 13, the bankruptcy petition was filed.
Champion of time spent, loser on monetization
According to Sensor Tower data, Character.AI has consistently ranked among the apps where users spend the most time. For a social or short-video product that is good news; for a chatbot it raises a question. The longer people chat, the more the company pays for inference, and if revenue does not keep pace with usage, longer sessions mean faster losses. TechCrunch also pointed to this: AI costs rise with usage, and the pressure to monetize rises with them.
PitchBook counts more than $193 million in total funding, with investors including Lightspeed, SV Angel, Greycroft and a16z. A rough comparison with Google's $2.7 billion licensing fee shows that equity funding was only a small fraction of it. Where the licensing money mainly went at the time, and how much was distributed to shareholders, the company has never fully disclosed.
The reporting contains neither revenue nor the latest user numbers. The range of assets and liabilities in the court filing is also wide, so who the company owes, and how much, will have to wait for later filings.
The lawsuits never stopped
The company's other storyline is litigation. After a 14-year-old boy in Florida died by suicide, his mother sued Character.AI, saying her son had become addicted to a chat character on the platform. Texas then opened an investigation into whether the platform violated rules on children's privacy and safety.
The company later settled with some of the plaintiffs, added safety features and eventually barred minors from using the service altogether. For a product whose usage time was carried by young users, that cut went straight into its core user base.
Whether the bankruptcy process will affect pending lawsuits, and how settlement payments will be ranked, are not addressed in the reporting, and Character.AI has not responded on the matter. For readers following the AI companion category, this story is worth reading alongside it: the same high engagement, the same difficulty getting users to pay, and the same regulatory pressure over protecting minors.
Sources: TechCrunch reporting; U.S. bankruptcy court filings (asset and liability ranges); CocoLoop; PitchBook funding data (the $193 million cumulative figure); Sensor Tower app usage-time data.