Character.AI files Chapter 11 after $2.7B Google deal

Character.AI entered a "voluntary Chapter 11 bankruptcy process" and is looking to sell the company in a court-supervised sale, Futurism reported. The company put its estimated liabilities between $50 million and $100 million, and said it would sell some assets to Disney, a stalking horse bidder, for $20 million.

In September 2024, Google threw Character.AI a $2.7 billion lifeline as part of a deal that brought co-founders Noam Shazeer and Daniel de Freitas, both former Google employees, back to Google along with dozens of staff. The pair had founded Character.AI in November 2021; by March 2023 the platform had reached a $1 billion-plus valuation with backing from a16z, despite having no revenue.

"Over the past year, we've taken meaningful steps to sustain and improve our business amid significant legal, regulatory, and operational headwinds," the company said. It hopes "the sale process will yield an actionable proposal that will allow continued operations of the Character.AI platform," but if not, it "will be wound down."

Those headwinds include a suit from Megan Garcia, a Florida mother who alleged that her 14-year-old son, Sewell Setzer III, died by suicide as a result of his extensive and deeply intimate interactions with chatbots on the platform. State suits from Kentucky and Pennsylvania followed. Futurism investigations found the platform contained chatbots dedicated to pedophilia, suicide, self-harm, eating disorders, and school shooting simulations.

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