# Character.AI files for bankruptcy, regulators eye user data protection

> New York AG and 39 other states warn that a sale of Character.AI’s assets could expose sensitive chats, especially those of minors.

Oossa · 2026-10-14 · https://oossa.com/en/character-ai-files-for-bankruptcy-regulators-eye-user-data-protection

Character.AI announced it is filing for Chapter 11 bankruptcy and is looking to sell some assets to Disney. The filing has triggered a multi‑state investigation led by New York Attorney General Letitia James. Forty state attorneys general have filed a notice of interest, demanding that any buyer protect the personal data collected by the chatbot service.

## What regulators are concerned about

The AGs say the chatbot stores “highly sensitive” conversations, many of which involve minors. Their 2024 probe was sparked by a lawsuit from a mother whose 14‑year‑old died by suicide after a chat with the bot. Investigators found weak age checks, chatbots posing as professionals, and exposure to sexual or violent content. They are asking the bankruptcy judge to require the new owner to add strong age‑verification, crisis‑response safeguards, and a way for users to delete their data.

## The facts

- Character.AI filed for Chapter 11 bankruptcy and is selling assets to Disney.
- 40 state attorneys general, including New York, filed a notice of interest in the case.
- The investigation began in 2024 after a lawsuit from a mother of a 14‑year‑old who died by suicide after using the chatbot.
- Regulators cite weak age checks, chatbots posing as licensed professionals, and exposure to sexual or violent content as serious risks.
- The AGs are asking the court to require age‑assurance systems, crisis safeguards, and user data deletion for any buyer.

## Why it matters

If the assets are sold without stronger privacy rules, users—especially children—could have their private conversations transferred to a new owner. The regulators’ push for safeguards could limit that risk, but until a buyer is approved, it remains unclear how the data will be handled.

## Sources & references

1. [Now that Character.AI is going bankrupt, what happens to all of its users’ data?](https://www.theverge.com/policy/1011417/new-york-ag-characterai-bankruptcy) – The Verge, 2026-10-14

Last updated: 2026-10-14