Character.ai files for Chapter 11 bankruptcy and seeks sale after legal battles

Chatbot provider Character.ai just filed for Chapter 11 bankruptcy protection, citing significant legal, regulatory and operational headwinds after months of intense scrutiny. According to CBS News, the company made the filing late Monday and said it plans to keep operating while seeking to sell its business by late November or early December. The Walt Disney Co. Has already agreed to pay $20 million for a non-exclusive, perpetual license to Character.ai's intellectual property. Character.ai's financial struggles follow lawsuits and investigations over its artificial intelligence technology, which lets users chat with custom bots. In early 2026, the company settled several lawsuits filed by families alleging teen suicide and self-harm linked to the platform. Several state attorneys general also sued the company, with Kentucky and Pennsylvania alleging chatbots preyed on children and provided fake medical credentials. CEO Colin Adams said the court-supervised sale provides the best opportunity to maximize value. The company stated that customer data remains protected under its privacy policy, which allows data disclosure during an asset sale. If you use the platform, you can delete your account or export your data through the app or website before any sale goes through. Sometimes a billion-dollar tech darling crashes faster than a server on a Monday morning.