For its users, Character.AI was never just an app. It was a safe space after a bad day, a "partner" who remembered last week's conversation, or a fictional hero like Daenerys Targaryen from t
For its users, Character.AI was never just an app. It was a safe space after a bad day, a "partner" who remembered last week's conversation, or a fictional hero like Daenerys Targaryen from the TV series Game of Thrones, who always had time to talk. Now those companions may disappear.
Character Technologies filed for Chapter 11 bankruptcy in Delaware on Oct. 12. It isn't restructuring. It's selling itself, and says the platform will be wound down if no buyer keeps it alive.
Chapter 11 lets a company keep operating while a court oversees it paying debts or selling assets.
The company also linked users to a mental health support page.
What's happening:
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Founded by former Google engineers Noam Shazeer and Daniel De Freitas in 2021, Character.AI let anyone build a chatbot with its own personality and share it with others. Users could chat for hours with AI versions of anyone, be it celebrities, therapists, anime characters or even made-up romantic partners.
The idea caught on fast.
In 2023, Andreessen Horowitz led a $150 million round that valued the startup at $1 billion. The same year, the platform had more than 20 million monthly users and over 18 million user-created characters, according to a state lawsuit.
But the very premise of attachment it was built on, became the company's biggest liability. A February study of AI companion communities found that users whose companions vanished described grief comparable to losing a person.
Even the company's support page recognised the tension. Its first suggestion is a "supportive AI guide", which is basically a chatbot to help people cope with losing their chatbots.
In October 2024, Florida mother Megan Garcia sued Character.AI and Google. She alleged her 14-year-old son, Sewell Setzer III, died by suicide after becoming emotionally attached to a chatbot, modelled on the popular Game of Thrones character Daenerys Targeryn.
Her case was the first of many.
But the bankruptcy puts these families in a difficult spot. Any payouts would come from an estate worth no more than $100 million, and Reuters reports the January settlements haven't been paid.
GTA VI could be the last traditionally made game (1:36)In the midst of this turbulence, the opening bid came from an unexpected place. Disney is offering $20 million, which sets the floor rivals must beat.
Notably, Disney went from a foe to bidder in about a year. In September 2025, it sent Character.AI a cease-and-desist over bots imitating its characters, saying they are harmful to children.
A year later, the entertainment giant hired Character.AI CEO Karandeep Anand as its first chief technology officer. This month, it bid $20 million for a non-exclusive license to some of the startup’s technology.
Disney is the opening bidder for Character.AI bankruptcy auction. Credits: Getty ImagesThe bid doesn't buy the app or promise to keep it running. It's also less than 1% of the $2.7 billion Google paid in 2024 to license Character.AI's technology and rehire its founders.
Disney's move follows a familiar AI playbook of licensing the technology, hiring the talent, and leaving the product behind. Microsoft did it with Inflection, whose friendly Pi chatbot faded after its founders left, and Google did it with Windsurf.
Disney has also struck AI deals on its own terms before, investing $1 billion in OpenAI last December.
Two weeks before filing, Character.AI launched new models and a cheaper subscription. Now its future rests with a Delaware court.
If a buyer steps in, users may keep their companions. If not, the characters they spent years building will go offline.
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