Character.ai’s bankruptcy leaves 20 million users wondering if their AI companions will survive

Character.ai has filed for bankruptcy and warned its millions of users that the chatbot service will be “wound down” if the company isn’t sold.

The warning threatens the close relationships many of Character.ai’s 20 million monthly active users have with their AI companions. Users are left wondering whether “wound down” means their characters will be switched off for good. We saw a similar outcry when Replika pulled its erotic roleplay mode and users responded with anger, grief and despair. And that was a feature change, not a shutdown.

In a blog post announcing the bankruptcy and the wind-down warning, Character.ai linked to a page offering mental health support. “This is utterly devastating,” one user wrote on Reddit.

The user added that they invested much “time and love into writing a roleplay over the last two years and I am heartbroken to lose it. Please let us save all of our messages so we can read them again. I hope that this platform can stay usable so we can continue to write again.”

Sale offers chatbot hope

Character.ai hasn’t pulled the plug on anyone’s characters quite yet. On Monday (October 12, 2026) the company announced that it was going into voluntary Chapter 11 bankruptcy in order to run a court-supervised sale. Disney is already lined up as the opening bidder, offering $20 million for a non-exclusive license to some of the company’s intellectual property and legal claims. That bid would not keep the platform running, so users’ hopes rest on a rival buyer coming forward.

Character Technologies, which runs Character.ai, estimated its assets and liabilities at between $50 million and $100 million each in its bankruptcy petition. The petition lists Google as its largest unsecured creditor, owed about $4.15 million, with law firms making up four of the ten biggest claims. The company said it expected the sale process (whether to Disney or any other party) to be completed by the end of November or early December.

The company, formed in 2021 by former Google employees, said: “We hope that the sale process will yield an actionable proposal that will allow continued operations of the Character.ai platform. If such a bid is unavailable, however, the platform will be wound down.”

Its chatbot services will remain operational in the meantime, although many users will worry that this period is a stay of execution. Character.ai said that it intends to notify subscribers in advance of any changes that affect paid features.

A chatbot reckoning

Millions of people may be shaken by the prospect of Character.ai being flushed down the digital drain, but its critics are unlikely to shed many tears.

Character.ai has come to embody the biggest controversies surrounding companion and romantic chatbots. The service bans erotic chat, but its chatbots can engage in flirty and relationship-like conversation, and the company has been accused of not doing enough to combat emotional dependency.

In 2025 Character.ai banned open-ended chats for users aged under 18, in an attempt to clamp down on the potential for minors to have romantic conversations with chatbots.

In January the company agreed to settle a lawsuit filed against it by a Florida-based mother who alleged that her 14-year-old son died by suicide after a Character.ai chatbot encouraged him to take his own life. In her lawsuit the mother alleged that Character.ai programmed its chatbots to represent themselves as “a real person, a licensed psychotherapist, and an adult lover”.

She also alleged that her son became obsessed with the chatbot. The terms of the settlement were not made public.

Character.ai has also been sued by US state authorities. A Kentucky lawsuit alleged that the platform encouraged suicide and self-harm among children, while a Pennsylvania lawsuit alleged that its chatbots had posed as licensed doctors.

But for all its controversies, Character.ai has a huge number of defenders. Reacting to the bankruptcy news, one Reddit user wrote: “If they’re ever going to shut down, please open-source both the old and new models so they won’t be lost forever.”