An AI company blamed for a 14-year-old’s suicide has filed for bankruptcy.
Character.AI, which allowed users to speak to AI avatars with names such as “school bully” or “bad boy best friend”, warned its app could be shut down if no rescue bidder emerged.
Founded by former Google engineers, Character.AI was one of the first breakout successes of the ChatGPT era. It soared to a valuation of $2.5bn (£1.9bn), raising nearly $200m. Its app still has an estimated 20 million users, who can create and talk to AI-powered characters.
However, the start-up has been battling a series of lawsuits accusing it of putting children at risk.
The company was sued in 2024 after the death of Sewell Setzer, a 14-year-old from Florida, who took his own life after allegedly becoming addicted to speaking to an AI version of Daenerys Targaryen, a Game of Thrones character.
Setzer’s mother, Megan Garcia, filed a lawsuit against Character.AI, warning of the “dangers of deceptive, addictive AI technology”.
The Telegraph revealed at the time that Character.AI users had created digital avatars of dead British children, including the Brianna Ghey, a murdered teenager, and Molly Russell, 14, who took her own life in 2017 after viewing self-harm images on social media. The bots were later removed.
The company said on Tuesday it had filed for bankruptcy protection after facing “significant legal, regulatory, and operational headwinds”.
Character.AI’s app will remain online, but the company said it could be wound down if no bidder emerges.
As part of the bankruptcy, the company said Disney had agreed a deal to licence some of its technology for $20m.
While its popularity soared among teenagers after launch of ChatGPT, Character.AI faced repeated claims that its app was not safe for younger teenagers.
Character.AI banned under-18s from talking to its avatars last year in response to safety concerns from parents. It reached a settlement with Ms Garcia and a number of other claimants in January this year.
The company has also been facing a series of lawsuits from US states over alleged safety failures.
These included a claim from Pennsylvania alleging the company’s AI bots had pretended to be licenced psychiatrists. A lawsuit from Kentucky accused Character.AI bots of offering detailed and graphic accounts of self-harm.
Character.AI’s failure represents the most high-profile AI business to collapse since the launch of ChatGPT, which has prompted a flood of funding into heavily loss-making start-ups offering digital avatars and agents.
The company said on Tuesday: “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.”
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