Character.ai enshittified its product but was still burning tons of cash, its bankruptcy documents say.

In May, 404 Media wrote that Character.ai’s changes are “what AI enshittification looks like,” with tons of ads, usage limits, guardrails, and “lobotomized” models. In the bankruptcy filing, Adams essentially admits that this enshittification was the strategy: “Character has, however, taken significant steps to reduce its operating burn, including transitioning inference workloads to lower-cost GPU capacity and post-training open-weight models rather than developing proprietary foundation models. At the same time, Character reduced its employee headcount,” he wrote. “In mid-2025, Character launched in-app advertising […] in early 2026, Character also introduced in-app purchases.”

While the lawsuits against Character are significant, they are also not unusual for an AI industry that has been plagued with legal problems relating to the theft of intellectual property and suggesting self harm or violence to their users. In other words, there is nothing in Character’s bankruptcy filings that could not be said about many other AI companies that are spending a huge amount of money on compute without having a revenue model that can support it. The difference between Character AI and behemoths like OpenAI, Anthropic, Meta, and Google is that those other companies have been able to repeatedly get injections of new cash, or, in the case of Meta and Google, have been able to subsidize their AI products with revenue from their massive advertising businesses.

The company said in a blog post that it will continue operating through the bankruptcy process: “The Character.ai platform remains up and running, and you can continue to access all services at this time. We’re focused on finding the best path forward for our platform and community.”