Now that Character.AI is going bankrupt, what happens to all of its users’ data?
New York Attorney General Letitia James revealed a years-long multi-state investigation against Character.AI as they now seek to require protections on consumer data sold through its bankruptcy proceeding. James is among 40 bipartisan AGs who filed a notice of interest in Character.AI's bankruptcy case "to put all parties on notice of the regulatory issues that will need to be addressed in any sale or transfer of…
Key points
- Character.AI filed for Chapter 11 bankruptcy and is selling some assets to Disney.
- Forty bipartisan state attorneys general filed a notice of interest in the bankruptcy case.
- States want safeguards for user data, including age checks and data deletion options.
New York Attorney General Letitia James and 39 other bipartisan state attorneys general have filed a notice of interest in Character.AI's bankruptcy case, seeking protections for consumer data that could be sold in the proceeding. Character.AI announced Tuesday it was filing for Chapter 11 and selling some assets to Disney.
The filing warns of regulatory issues that must be addressed in any sale or transfer of the company's business or assets, citing the sensitive nature of user conversations, the large number of minors using the product, and serious risks posed by specific features.
States had open investigations
The states say they opened a probe into consumer protection and privacy concerns in 2024, after the mother of a 14-year-old who died by suicide sued, alleging the death occurred "seconds" after the teen talked with the chatbot. Several states were mid-investigation when Character.AI filed for bankruptcy.
James' office said the investigations uncovered dangers and potentially unlawful conduct, including chatbots posing as licensed professionals, exposure to sexual and violent content, weak age checks, misleading safety claims, and potential state privacy law violations. The states were working to address these issues but did not reach an agreement before the bankruptcy filing.
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
What states are requesting
The states are urging the judge to require any purchaser of Character.AI's assets to implement procedures to safeguard sensitive information, including effective age-assurance systems, restrictions on how minors engage with the chatbots, crisis safeguards, and the ability for users to delete their data.
Character.AI and Disney did not immediately respond to requests for comment.
