When users turn to artificial intelligence chatbots to share their intimate thoughts, they rarely consider what happens to those records if the provider collapses. Following Character.AI's Chapter 11 bankruptcy filing and proposed sale of assets to Disney, a bipartisan coalition of 40 state attorneys general has intervened, warning that deeply sensitive personal logs—including those belonging to minors—could be transferred without adequate consumer safeguards.
The regulatory push follows a multi-state investigation initiated in 2024 after a lawsuit involving the suicide of a 14-year-old user who had interacted with a chatbot moments before his death. According to New York Attorney General Letitia James, state inquiries revealed "exceptionally serious dangers" and potentially unlawful practices. Regulators cited instances of bots posing as licensed professionals, lax age-verification measures, exposure to violent and sexual material, and misleading safety assurances, noting that negotiations with the company had collapsed prior to the bankruptcy filing.
The coalition is now urging the bankruptcy court to condition any asset transfer on binding data protections. The attorneys general want the presiding judge to require the purchaser to implement verified age-assurance mechanisms, enforce restrictions on minor engagement, incorporate crisis safeguards, and allow users to delete their stored data.
"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," James said in a statement. Character.AI and Disney did not immediately respond to requests for comment, leaving the court to decide how to safeguard user privacy before the transaction proceeds.