Character.AI Filed for Bankruptcy After Lawsuits Alleging Its Chatbots Harmed Children

IBL News | New York

High-profile AI startup Character.AI filed for bankruptcy last week, with the goal of reaching a global resolution of all legal claims it received, including lawsuits alleging the company’s chatbots pushed children to suicide and ​self-harm.

Character.AI also said it agreed to sell some assets to Walt Disney for $20 million.

US states had sued the company multiple times, with Kentucky alleging that its chatbots encouraged users to cut, starve, or ​kill themselves and Pennsylvania alleging its chatbots posed as doctors.

Character.AI reached preliminary settlements in five private lawsuits in January. ⁠However, recent court documents from those five cases indicated that the settlements had ​not yet been finalized or paid.

Two former Google employees founded Character.AI in 2021. In 2024, Google licensed Character.AI’s technology and rehired the founders.

The company has not been profitable, despite having ​roughly 12 million active users. ⁠It was operating at a loss of approximately $8 million to $9 million per month, according to court documents filed in the Wilmington, Delaware, bankruptcy court.

Character Technologies, its US-based owner, listed estimated assets and liabilities of between $50 million and $100 million, according to a court filing.

The platform will continue to operate during the bankruptcy, but may be shut down if it can’t find a buyer, the company said.