A coalition of 40 state attorneys general is asking the court overseeing Character.AI’s bankruptcy to ensure that sensitive user information receives explicit protection in any sale or transfer of the company’s assets, The Verge reported on October 14.

New York Attorney General Letitia James disclosed the action alongside details of a multi-state investigation into the AI companion company. The officials filed a notice of interest in the bankruptcy case to alert the court and potential purchasers that regulatory issues must be addressed as the process moves forward.

Private chat bubbles enclosed in a data capsule with youth-safety shields.
The coalition says sensitive conversations and data involving minors require special protection.

Character.AI announced that it had filed for Chapter 11 protection and planned to sell some assets to Disney, according to The Verge. The attorneys general argue that a transfer could carry unusual privacy risks because users may have shared highly personal conversations with chatbot characters and because minors have used the platform.

The filing also revealed that several states were already investigating the company when the bankruptcy began. The Verge reports that the probe opened in 2024 and examined consumer-protection and privacy concerns. State officials allege that their work identified serious risks involving children, including weak age checks, misleading safety claims, exposure to sexual or violent material, and bots presented as licensed professionals. Those allegations remain claims by the states; the report says no agreement was reached with Character.AI before the filing.

Gavel beside abstract icons for age checks, access limits, crisis safeguards, and deletion.
The requested conditions include age assurance, limits for minors, crisis safeguards, and user-controlled deletion.

The coalition is urging the bankruptcy judge to require concrete safeguards from any purchaser. The measures described by The Verge include effective age-assurance systems, limits on how minors may interact with chatbots, crisis-response protections, and a way for users to delete their information.

The dispute turns a corporate restructuring into a test of how intimate AI-chat records should be handled when a platform changes hands. The attorneys general are not merely asking that the technology remain secure during a sale; they are seeking conditions on how a future owner engages with minors and manages data collected before the transaction.

Character.AI and Disney did not immediately respond to The Verge’s requests for comment. The court has not yet been reported as adopting the coalition’s requested conditions, so the final treatment of the data remains unresolved. For users, the central question is whether privacy and deletion rights will follow their conversations through the bankruptcy process rather than being left to a buyer’s discretion.