An AI chatbot used by more than 100,000 Australian children has filed for bankruptcy protection in the United States. Character. AI, an artificial intelligence platform known for conversation and role-play, said it has begun a voluntary Chapter 11 bankruptcy process as it seeks a buyer. The move follows what the company described as a difficult year. “Today, we’re sharing that Character. AI has initiated a voluntary Chapter 11 bankruptcy process to facilitate a court-supervised sale of the company,” the company said in a statement. “After a comprehensive review of our available alternatives, our board determined that this court-supervised sale process provides us with the best opportunity to maximise value for all of our stakeholders.”

The development is notable in Australia, where children are already using AI companion services in significant numbers. Research published by the eSafety Commissioner in March found 8 per cent of Australian children aged 10 to 17, or about 200,000 young people, had used an AI companion. The same research indicated Character. AI was the most widely used AI companion among Australian children.

About 5 per cent of children in that age group, about 125,000 young people, had used Character. AI, according to the research. About 1 per cent, or about 25,000 children, had used it in the four weeks before the survey. The survey conducted by the eSafety Commissioner, which polled 1950 children, also found AI tools were often being used for personal and social reasons, not just entertainment. More than half of children who had used an AI assistant or companion said they had turned to the services for things such as advice about what to do in a situation, physical health advice, discussing feelings or challenges, or seeking mental health and wellbeing advice. At the same time, the research pointed to risks.

One in five children who had used an AI assistant or companion reported potentially inappropriate or harmful interactions, while about one in three said they had shared personal or otherwise sensitive information. Court documents show Character Technologies, Inc., the company behind Character. AI, filed for Chapter 11 in Delaware on October 12. The company estimated its assets at between $100 million and $500 million, and its liabilities at between $500 million and $1 billion.

“The Character.ai platform remains up and running, and you can continue to access all services at this time,” the company said. It also toldrs that their accounts remain active and that “billing is unchanged for now”. “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.”The company added that “maintaining a safe and engaging experience for our community remains a top priority” as the process unfolds.

The bankruptcy filing comes as Australian regulators continue to scrutinise AI companion services. The eSafety Commissioner also published findings from notices issued to four AI companion providers, including Character. AI. The findings identified concerns about age assurance, moderation, sexual content, self-harm risks and crisis support under the Basic Online Safety Expectations framework.