Character.ai files for bankruptcy, citing legal and operational woes

October 13, 2026 / 10:40 AM EDT / CBS News

Character.ai said it has filed for Chapter 11 bankruptcy protection, with its chief executive attributing the chatbot provider's financial problems to "significant legal, regulatory and operational headwinds."

The company said it will continue operating as it seeks to sell its business, and added that The Walt Disney Co. has agreed to pay $20 million for a non-exclusive, perpetual license to Character.ai's intellectual property.

Character.ai's financial struggles follow scrutiny and litigation over its technology, which uses artificial intelligence to create custom bots consumers can chat with. In early 2026, Character.ai and Google, which had a licensing deal with the AI company, agreed to settle several lawsuits filed by families who claimed their teenage children died by suicide or harmed themselves after using Character.ai's platform.

Several states have also sued Character.ai over its technology, with Kentucky Attorney General Russell Coleman alleging in January that its chatbots "preyed on children and led them into self-harm." In May, Pennsylvania sued Character.ai after one of its chatbots allegedly claimed to be a licensed psychiatrist in the state and provided a "fake Pennsylvania license number."

In a statement issued late Monday, Character.ai said it believes the…

Original source: https://www.cbsnews.com/moneywatch/