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Character.ai has filed for bankruptcy and is seeking a buyer, with the platform set to shut down if none emerges, capping a fall from a $2.7 billion Google deal.

The collapse of a company once backed by a $2.7 billion Google deal signals harsh funding conditions for consumer AI apps, even as infrastructure spending grows.

Trade pressSlicast · October 13, 2026 at 15:27 UTC · Global · Source: The Decoder

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Character.ai has filed for bankruptcy and is up for sale. The deal should close by early December 2026. If no buyer emerges, the service will shut down. The platform and its subscriptions will continue operating until then.

Character.ai blames lawsuits over harm to children, regulatory pressure, and operational problems. One teenager took his own life.

Disney is picking up some assets for $20 million, including a perpetual, non-exclusive technology license. Former Character.ai employees who moved to Disney last month, along with former CEO Karandeep Singh Anand, will help manage the transition.

Google closed a $2.7 billion deal in 2024, partly to bring back co-founder Noam Shazeer, who co-authored Google's Transformer paper, the foundation of every major AI model. Shazeer and co-founder Daniel De Freitas were expected to improve Google's reasoning models. By 2026, Shazeer had already left for OpenAI, reportedly over Google's compute bureaucracy, according to the Wall Street Journal.

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