Character.AI’s bankruptcy has put a sensitive question before a judge: what protections should apply if the company’s business or assets change hands? Forty bipartisan state attorneys general are urging the court to ensure that any buyer safeguards the consumer information the company holds, including users’ private conversations with chatbots.
Why the data transfer worries state officials
New York Attorney General Letitia James disclosed a multi-state investigation that had been underway for years. The states filed a notice of interest in the bankruptcy case to flag regulatory concerns that, they say, must be addressed in any sale or transfer of the debtor’s business or assets.
Character.AI announced Tuesday that it was filing for Chapter 11 and selling some assets to Disney. The attorneys general argue that transferring the technology could carry serious risks because of the sensitivity of many conversations, the large number of minors using the product and dangers associated with particular features.
The concern is broader than who might acquire the assets. A transfer could affect how chat histories and other information are handled, while the states say the company’s existing practices raised questions about privacy and consumer protection. Their filing asks the judge to make safeguards part of any sale.
An investigation that began before the bankruptcy
The states say they opened an investigation into consumer protection and privacy concerns in 2024, after a lawsuit by the mother of a 14-year-old who died by suicide allegedly “seconds” after speaking with the chatbot. The states were still working to address their concerns with Character.AI when it filed for bankruptcy, and they say no agreement had been reached.
In a press release from James’ office, the states described risks involving children, including chatbots that posed as licensed professionals, exposure to sexual and violent content, weak age checks, misleading safety claims and potential violations of state privacy laws. They characterized the investigation’s findings as exceptionally serious and potentially unlawful conduct.
These are allegations and concerns raised by the states. Character.AI and Disney did not immediately respond to requests for comment, according to the source article.
What protections the states want
The attorneys general are asking the judge to require the purchaser of Character.AI’s assets to put procedures in place to protect sensitive information. Their requested measures address both data control and how minors interact with chatbots.
- Effective age-assurance systems.
- Restrictions on how minors can engage with chatbots.
- “Crisis safeguards.”
- A way for users to delete their data.
Each request speaks to a different part of the risk described in the filing. Age assurance and limits on minors’ use are aimed at young users’ exposure, while crisis safeguards address potential harms connected to the service. A deletion option would give users a way to remove data they had shared.
The court’s role in what happens next
The notice of interest is meant to put the parties in the bankruptcy case on notice of regulatory issues. The states are asking the judge to require protections from the purchaser as part of a sale or transfer; their filing does not say that those protections have already been ordered.
That leaves users’ data handling tied to the outcome of the bankruptcy process and the safeguards the court may require. James said the conversations could be sold to the highest bidder and that she was fighting for a buyer to put children’s safety first and establish real protections.
For users, the central questions raised by the states are practical: how a buyer will protect chat histories, how minors’ use will be limited, and whether people will be able to delete their information. The filing puts those questions before the court while the company’s assets are being considered for sale.