Character.AI bankruptcy: 40 state AGs seek safeguards for users' private chats
Character.AI announced on Tuesday that it was filing for Chapter 11 and selling some assets to Disney. Now state attorneys general are trying to make sure the private chats its users shared with chatbot characters are not exposed to the highest bidder.
New York Attorney General Letitia James is among 40 bipartisan AGs who filed a notice of interest in the bankruptcy case. The stated purpose is "to put all parties on notice of the regulatory issues that will need to be addressed in any sale or transfer of the Debtor's business or assets." The AGs warn there could be serious risk in transferring the technology, citing the highly sensitive nature of the conversations many users have with Character.AI chatbot characters, the large number of minors who use the product, and the serious risks posed by specific features of the product.
The filing also reveals that several of the states had been mid-investigation when Character.AI filed. The states say they opened a probe into consumer protection and privacy concerns in 2024, following a lawsuit from the mother of a 14-year-old who died by suicide, allegedly "seconds" after talking with the chatbot. According to a press release from James' office, the investigations uncovered exceptionally serious dangers and potentially unlawful conduct from Character.AI, particularly its treatment of children. The press release lists chatbots posing as licensed professionals, exposure to sexual and violent content, weak age checks, misleading safety claims, and potential violations of state privacy laws. The states were working with Character.AI to address these issues but did not reach an agreement before the company filed for bankruptcy.
The states are urging the judge to require whoever purchases Character.AI's assets to implement procedures that safeguard the sensitive information the company maintained. Those include effective age-assurance systems, restrictions on how minors can engage with the chatbots, "Crisis safeguards," and letting users delete their data.
James said in a statement that the company collected some of the most private thoughts children have ever shared, and that those conversations could now be sold off to the highest bidder. She said she is fighting to make sure any buyer puts children's safety first and puts real protections in place. Character.AI and Disney did not immediately respond to requests for comment.
Key facts
- New York Attorney General Letitia James is among 40 bipartisan state AGs who filed a notice of interest in Character.AI's Chapter 11 case, asking that any sale or transfer of its business or assets address regulatory issues.
- Character.AI announced on Tuesday that it was filing for Chapter 11 and selling some assets to Disney.
- The filing reveals that several states were mid-investigation when the company filed; the probe into consumer protection and privacy concerns opened in 2024 after a lawsuit from the mother of a 14-year-old who died by suicide.
- The states want the judge to require any purchaser to adopt effective age-assurance systems, restrictions on how minors engage with the chatbots, 'Crisis safeguards', and the ability for users to delete their data.
- The states say the investigations found potentially unlawful conduct, including chatbots posing as licensed professionals, exposure to sexual and violent content, weak age checks and misleading safety claims.
Why it matters
A chatbot company's bankruptcy turns its archive of user conversations into an asset that could change hands. The AGs stress that many of those conversations are highly sensitive and that many of the users are minors. The filing puts regulators on record before any sale closes, so privacy and child-safety conditions are raised as part of the sale itself rather than afterwards. It also shows that several states were already investigating the company when it went into bankruptcy.
Who it affects
Character.AI users, especially minors, whose private chats with chatbot characters are at stake. It also affects Disney and any other prospective buyer of Character.AI's business or assets, who would face the conditions the states are asking the judge to impose. The company itself is affected as the debtor in the Chapter 11 case.
How to use it
This is a legal and regulatory development, not a product. The one concrete item for users in the source is that the states are asking that any purchaser let users delete their data. The source does not say what will actually happen to user data.
How solid is it
The facts of the filing come from The Verge's reading of the notice of interest and a press release from James' office. The 40 AGs and the requested safeguards are stated directly. The description of dangers and potentially unlawful conduct is the AGs' own characterisation, and no findings of wrongdoing are established. The suicide is described as allegedly connected to the chatbot. Character.AI and Disney had not responded to requests for comment, so no company position is given.
Risks and caveats
The source gives no sale price, no detail on which assets go to Disney, no calendar date for the filing (only 'Tuesday'), and no court, judge or hearing date. The 39 other AGs and their states are not named. A notice of interest asks the court to take account of regulatory issues; the source does not say whether the judge will impose the requested conditions.
“This company collected some of the most private thoughts children have ever shared, and now those conversations could be sold off to the highest bidder”
— Letitia James, New York Attorney General