A historical figure, a cartoon hero, a confidant, an imaginary friend. On Character.AI, anyone could create an AI-powered character and chat with it for hours. Millions of people did, many of them teenagers.
On 12 October, the company filed for bankruptcy.
What is happening
Character.AI has applied for protection under US bankruptcy law, a procedure that allows it to keep operating while a sale is arranged. According to court filings, its assets and liabilities both stand between 50 and 100 million dollars.
Disney was first to step forward: it is offering 20 million dollars for a licence to part of the company's technology, and has already hired some of its former employees. Other buyers can still make offers. The sale is expected to be completed in late November or early December.
In the meantime, the app remains open. Subscriptions continue, and users keep access to their accounts and their conversations. But if no buyer is found, the service will be shut down.
How did it come to this?
Launched in 2021 by former Google researchers, Character.AI was one of the first big successes in consumer AI. In 2024, Google hired its boss and obtained a licence to its technology, a way of acquiring the talent without buying the company.
Left on its own, Character.AI had to face competition from giants such as ChatGPT and Gemini, but above all a series of lawsuits. Several families accused it of having contributed to serious psychological problems, and to suicides, among teenagers. The company agreed to settle five of those cases out of court earlier this year, and US states also sued it. Since late 2025, it has banned minors from free-form conversations with its characters. In its bankruptcy filing, it cites significant legal, regulatory and operational pressures.
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What happens to the conversations?
This is the question causing the most concern. According to its own documents, Character.AI has around 163 million accounts, current and former. And what those conversations contain is often very intimate: confidences, fears, imaginary love stories.
A coalition of 40 US attorneys general has intervened in the proceedings. They are demanding binding privacy guarantees, warning that the sale of the company's assets risks compromising the sensitive data of millions of users.
In a bankruptcy, customer data is often among the things that can be sold. A precedent stuck in people's minds in 2025: the genetic testing company 23andMe, in bankruptcy, put its operations up for auction, including the DNA data of millions of customers. After a strong mobilisation and the intervention of US authorities, they were eventually bought by a non-profit organisation linked to the co-founder. But the episode recalled an uncomfortable reality: when a company disappears, what you entrusted to it does not necessarily disappear with it.
What you can do
If you use Character.AI, now is the time to look through your settings at what you can export or delete. The company says its data practices remain unchanged during the proceedings. But a future buyer might have other plans.
More broadly, it is a good reflex for all virtual companion apps: never entrust to them what you would not want to see one day change hands. We recently noted that Europe wants to regulate these companions for minors.
What we take away
Character.AI had everything a success needs: millions of users, a coveted technology, passionate fans. It was not enough. Popularity does not make a business model, especially when legal risks pile up.
And for some users, the possible closure of the app would not just be a matter of data. It would be the loss of someone they talked to every day. We devote our reflection this evening to that.