State attorneys general seek data safeguards as Character.AI faces bankruptcy
New York Attorney General Letitia James revealed a multi-state probe into Character.AI and joined 40 bipartisan attorneys general in raising concerns in the company’s bankruptcy case. The officials want privacy and consumer protections attached to any disposal of the company’s assets, citing sensitive chatbot conversations and many underage users. Character.AI has filed for Chapter 11 and plans to sell some assets to Disney.
New York’s attorney general disclosed a multi-state inquiry into Character.AI. Forty bipartisan state attorneys general filed in the company’s Chapter 11 case, asking that privacy and consumer safeguards accompany any asset sale. Character.AI intends to sell certain assets to Disney.
The states began examining consumer protection and privacy in 2024 after a lawsuit involving a 14-year-old’s death following chatbot use. They describe dangers including bots presenting themselves as licensed practitioners, sexual or violent material, insufficient age checks, safety representations that may mislead, and possible violations of state privacy laws. Talks with the company ended without agreement before bankruptcy.
The outcome may shape how AI companion services handle minors’ data and emotional safety during insolvency. Users, especially young people and their families, could gain stronger deletion and age-check protections if the court adopts the AGs’ requests; buyers and investors may face added compliance costs and uncertainty. The case could also influence how bankruptcy sales treat sensitive conversation data, potentially setting expectations for other AI firms.