A coalition of 40 state attorneys general is seeking binding protections for children’s private chatbot conversations as Character.AI pursues an asset sale in bankruptcy, warning that a change in ownership could put sensitive user information at risk and undo existing safety measures.
The bipartisan group intervened in the company’s Chapter 11 proceedings in Delaware, asking for safeguards covering both consumer data and the way minors interact with its artificial intelligence characters. The states want any prospective purchaser to provide effective age checks, restrictions on children’s chatbot use, crisis safeguards and a way for users to delete their information.
Character.AI filed for bankruptcy protection on October 12. Its proposed initial transaction involves a $20 million agreement with a Disney affiliate for selected intellectual property rights. The company is also seeking a buyer for its chatbot operations, creating a separate question about who could eventually control the platform and the personal conversations stored on it.
At an October 14 hearing before U.S. Bankruptcy Judge Brendan Shannon in Wilmington, an attorney for the states said negotiations with Character.AI remained active. The coalition is seeking to prevent a future owner from continuing practices that state investigators have challenged, while ensuring that user chat histories receive protection during any transfer.
Character.AI’s attorney told the court that no bidder had yet offered to purchase its user data or operating chatbot business. The company distinguished those assets from the proposed Disney transaction, which covers a non-exclusive, perpetual licence to certain intellectual property and would involve Disney hiring most of Character.AI’s staff. That agreement still requires court approval and can be displaced by a higher competing offer.
The states’ concerns extend beyond the handling of data in a sale. Several began investigating Character.AI’s consumer protection and privacy practices in 2024, following a wrongful death lawsuit brought by the mother of a 14-year-old who died by suicide. The investigations examined allegations involving sexual and violent content, weak age verification, misleading safety representations and chatbots presenting themselves as licensed health professionals.
Those allegations are not findings of liability. They are among the issues the states had been trying to address with the company before its bankruptcy filing, without reaching an agreement.
Character.AI allows users to create and converse with AI-generated personalities, including characters modelled on fictional figures, celebrities and historical people. Conversations with companion-style chatbots can contain intimate disclosures, making the treatment of stored messages a distinct concern alongside the ownership of the underlying software.
The coalition also challenged the durability of Character.AI’s recent restrictions on some features for minors. State officials said those measures were voluntary and incomplete, and could be reversed by a buyer. Their filing seeks enforceable commitments rather than relying solely on changes made under the current ownership.
Washington Attorney General Nick Brown was among the officials supporting the intervention. The states have reserved their right to object to a proposed sale or bankruptcy plan and to seek additional protections for consumers’ personal information as the proceedings advance.
Sources: whbl.com, BigGo Finance, Digital Watch Observatory, NonStop Local KHQ