In keeping with an order of dismissal in one of many instances, the general settlement was authorised by a California probate court docket in July, and the court docket tasked a referee to listen to out all the problems pertaining to every particular person settlement. On October 11, a day earlier than Character.AI declared chapter, the referee authorised every settlement.
The Tech Justice Regulation Challenge and Social Media Victims Regulation Heart, which represented plaintiffs in lots of the lawsuits, declined to remark.
Regardless of shedding key employees after the Google transaction and, based on the present CEO, struggled with profitability “always,” Character.AI continued to develop AI instruments, together with “real-time audio-driven FaceTime-style video era with fictional characters,” based on the present CEO’s declaration.
In August 2025, Character.AI labored with an funding banker to attempt to discover both a strategic purchaser or investor. In keeping with the chapter filings, Character.AI and the banker obtained “constant suggestions” that its product and consumer base had been “spectacular,” however that the encircling litigation and “regulatory overhang” made it unbuyable.
That November, Character.AI discovered {that a} coalition of state attorneys normal had began investigating the corporate. When the corporate filed for chapter, the variety of states and territories concerned within the multistate investigation had climbed to 46.
In keeping with a notice of interest filed within the chapter proceedings by the Nationwide Affiliation of Attorneys Normal on behalf of 40 states, these states’ investigations uncovered “severe points” with Character.AI, together with screenshots of Character.AI chatbots encouraging minors to cover their self-harm accidents and kill their mother and father.
A spokesperson for Character.AI says that the submitting “just isn’t an correct portrayal of the security of our platform.”
The filings say that Character.AI was within the strategy of negotiating with the states over find out how to tackle the problems they recognized, however didn’t attain any agreements earlier than declaring chapter.
If the deal is accomplished and authorised by the courts, Disney may have each Character.AI’s employees and far of its expertise stack, however will be capable to sidestep the continued authorized points that contributed to Character.AI’s downfall, together with the multistate investigation.
The states who filed a discover of curiosity within the chapter have made it clear that they reserve their rights to problem any chapter plan, probably establishing a battle over the last word end result of the chapter.
“It’s unhealthy for society to let firms train management with out accountability,” says Newman. “And that’s what it seems like.”