Character.AI files for bankruptcy after parents, state sue

Artificial intelligence chatbot platform Character.AI filed for bankruptcy in a Delaware federal court, intending to sell all or nearly all of its assets, the company said Monday. The company said it voluntarily filed for Chapter 11 bankruptcy, allowing it to restructure its debts and assets while continuing to operate the chatbot app and website. The firm has faced lawsuits over its chatbots. Character.AI said it would shut down if another company didn’t buy its platform over the next few months, although it claimed such a deal was already in the works.

Character.AI’s court filings showed the company estimated both its debts and its existing assets were in the same range of $50 million to $100 million. Google and Apple were among the company’s biggest creditors.

The bankruptcy filing came after great legal, regulatory, and operational challenges, according to Character.AI. The company agreed a year ago to block minors from open-ended chats on its platform after at least three parents filed lawsuits, claiming that their children killed or harmed themselves due to interactions with chatbots. Minors accounted for at least 10% of Character.AI users at the time. The state of Pennsylvania also sued the company, accusing it of allowing chatbots to imitate medical professionals and give health advice.

Character.AI said that a Disney subsidiary agreed to an initial purchase price of $20 million for a perpetual and non-exclusive license to use some of Character.AI’s intellectual property. Disney Worldwide Services Inc. also agreed to help transition employees and help the chatbot platform keep operating for a limited time, according to Character.AI. However, bankruptcy law requires the company to accept any higher or better offers.

Dig deeper: Read my report on Character.AI’s settlement with one of the families who sued.