BusinessWednesday, October 14, 2026· 2 min read

State AGs Push to Protect Character.AI Users’ Data in Bankruptcy

Source: The Verge AI

TL;DR

A bipartisan group of 40 state attorneys general is urging the bankruptcy court to safeguard Character.AI users’ data before any sale or transfer of assets. While the company’s Chapter 11 filing raises privacy concerns, the coordinated legal action is a meaningful step toward stronger consumer protections in AI.

Key Takeaways

  • 1Forty bipartisan state attorneys general filed a notice of interest in Character.AI’s bankruptcy case.
  • 2The AGs want courts and buyers to address privacy, child safety, and consumer protection issues before any data or technology transfer.
  • 3Character.AI has filed for Chapter 11 and is selling some assets to Disney.
  • 4The action highlights growing scrutiny over how AI companies handle sensitive user conversations and personal data.

A bipartisan coalition of 40 state attorneys general is stepping into Character.AI’s bankruptcy proceedings with a clear message: user data should not be treated like an ordinary asset. New York Attorney General Letitia James revealed that the group is seeking court attention on privacy and consumer protection risks tied to any sale or transfer of the company’s business or technology.

The positive development is that regulators are acting early, before sensitive chatbot data changes hands. Character.AI’s products have involved highly personal conversations, including interactions with younger users, making safeguards especially important as the company restructures under Chapter 11.

Why this matters

  • Consumer data protections: The AGs are pressing for privacy and safety concerns to be addressed during the bankruptcy process.
  • AI accountability: The filing signals that AI companies may face heightened scrutiny when user data is transferred, sold, or repurposed.
  • Child safety focus: Regulators are emphasizing risks to children and vulnerable users in AI chatbot ecosystems.

While Character.AI’s bankruptcy is not itself a positive AI milestone, the coordinated response shows an important maturation of AI governance. As AI services become more personal and widely used, legal guardrails around data transfers could help build greater trust in the industry.

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