Character.AI files for bankruptcy and accepts Disney’s $20 million offer

Chatbot platform Character.AI has filed for bankruptcy and announced a preliminary agreement to sell part of its assets to Walt Disney for $20 million. The filing was submitted Monday evening, and the documents reached the bankruptcy court in Wilmington, Delaware, on Tuesday.

The company hopes the proceedings will help resolve several lawsuits and investigations concerning the safety of its chatbots. Character.AI has been accused in lawsuits brought by families and authorities in several states of encouraging children to self-harm, starve themselves, or commit suicide. In another case, authorities alleged that the chatbots had presented themselves as doctors.

Character.AI has reached preliminary agreements in five civil lawsuits, but the terms have not been disclosed, and the settlements have not yet been finalized or paid. The company says it has made user safety a priority.

The platform, founded in 2021 by two former Google employees, has approximately 12 million active users but is losing between $8 million and $9 million per month due to high computing and staffing costs. It will continue operating during the proceedings, but could shut down if a buyer for its operations is not found.

Disney is expected to receive a permanent, non-exclusive license for the company’s intellectual property. Other bidders may outbid the offer, and the asset sale is expected by late November or early December.