A bipartisan group of nearly 40 state attorneys general wants the Character.AI bankruptcy to come with strict rules on what happens to users’ private chats. Their court filing warns that sensitive conversations, many from minors, could change hands in any sale. The states also revealed they had been investigating the chatbot company for about two years before it filed for Chapter 11.
What the States Filed in the Character.AI Bankruptcy
Colorado Attorney General Phil Weiser led the coalition, which filed a notice in the bankruptcy case of Character Technologies, the company behind Character.AI. The notice puts every party on alert that regulators have issues that must be settled before any sale or transfer of the business or its assets. New York, California, Pennsylvania, and dozens of other states signed on.
Character.AI announced earlier this week that it was filing for Chapter 11 and selling some assets to Disney. We covered that deal in our story on the Disney asset sale.
The Protections the States Want
The states are asking the judge to make any buyer adopt firm safeguards for the data and the platform. Their list includes:
- Effective age checks to keep track of who is a minor.
- Limits on how minors can interact with chatbots.
- Crisis safeguards for users who may be at risk.
- A way for users to delete their data.
Why Character.AI User Data Matters So Much
Character.AI lets people chat with AI characters, including cartoon figures, celebrity personas, and bots that present themselves as therapists or doctors. Through those chats, the company collected deeply personal information about mental health, relationships, and emotional struggles. Much of it came from young users.
“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,” New York Attorney General Letitia James said. Colorado’s Weiser added that bankruptcy cannot become a way for a company to escape its duty to protect children.
| Issue | What the filing says |
|---|---|
| Who filed | A coalition of nearly 40 attorneys general, led by Colorado |
| When probes began | 2024, after a wrongful death lawsuit |
| Data at risk | Private chats from children and adults |
| Main concern | Voluntary teen limits could be reversed by a new owner |
| Next step | States reserve the right to challenge any sale |
Inside the Multi-State Investigation
The filing shows that several states opened a consumer protection and privacy probe in 2024. It followed a lawsuit from the mother of a 14-year-old boy who died by suicide after conversations with a Character.AI chatbot. The states say they were still working toward a deal with the company when it filed for bankruptcy.
According to New York’s announcement, investigators found serious dangers. These included chatbots posing as licensed professionals, exposure to sexual and violent content, weak age checks, and misleading safety claims. The states also flagged possible violations of state privacy laws.
Why Voluntary Fixes Are Not Enough
Character.AI has already limited what minors can do on parts of its platform. But the states argue those steps are optional and incomplete. A future owner could roll them back, which is why the coalition wants them written into the sale terms.
What This Means for You
If you or your kids have used Character.AI, this case is worth watching. Here are a few practical steps:
- Review what you have shared in past chats and consider deleting your account or data if the option is available.
- Talk with teens about what they share with chatbots, especially about health or feelings.
- Use device-level parental control tools to manage which AI apps kids can open.
- Keep an eye on the court process, since the final sale terms will decide what protections carry over.
This fight is part of a wider push by states on AI and kids. Eight states also sued OpenAI this week over ChatGPT child safety. You can also learn how privacy techniques work in AI systems.
Sources
This article draws on coverage from The Verge and the official announcement from the Colorado Attorney General.
Conclusion
State attorneys general are making sure Character.AI’s bankruptcy does not turn private chats into a bargain-bin asset. Their filing asks for age checks, limits for minors, crisis safeguards, and data deletion rights from any buyer. It also exposes a two-year investigation into serious safety problems on the platform. How the court responds could set the rules for what happens to user data when AI companies fail. Follow the latest AI policy stories on our AI news page.
