Character.ai, a startup behind a major AI companion app, filed for Chapter 11 bankruptcy on Monday, citing high development and growth costs, potential litigation liabilities, and regulatory engagement. The company stated that its platform became "costly to develop and grow." Ahead of the filing, Character.ai entered an agreement for Disney to serve as a stalking horse bidder to license some of its intellectual property for $20 million. The company expects to continue operating its platform with minimal disruptions during the sale process, though it could eventually be "wound down."