US state attorneys general demand data protections in Character.AI bankruptcy

New York Attorney General Letitia James, together with about 40 other state attorneys general from both major US parties, has filed a notice of interest in the bankruptcy case of Character.AI, an AI chatbot platform. The company announced on Tuesday that it was filing for Chapter 11 bankruptcy and selling some assets to the entertainment group Disney. The attorneys general want any deal to include safeguards for user data, because many minors use the platform.

Why the states are concerned

The officials say that transferring the technology carries serious risks. They cite the highly sensitive nature of users' conversations with chatbot characters, the large number of minors using the product, and the risks posed by specific features. The notice is meant to put all parties on notice about the regulatory issues that would have to be addressed in any sale of the business or its assets.

Investigation before bankruptcy

The filing reveals that several states were in the middle of an investigation when the company declared bankruptcy. The states opened a probe into consumer protection and privacy concerns in 2024, after the mother of a 14-year-old filed a lawsuit. She alleges her son died by suicide, possibly seconds after talking with the chatbot.

The attorney general's office said in a press release that the investigations uncovered exceptionally serious dangers and potentially unlawful conduct, particularly regarding children. These include chatbots posing as licensed professionals, exposure to sexual and violent content, weak age checks, misleading safety claims and possible violations of state privacy laws. The states tried to resolve these issues with the company but did not reach an agreement before the bankruptcy filing.

Demands for the buyer

The attorneys general are urging the judge to require the buyer of Character.AI's assets to put procedures in place to safeguard sensitive information. These include effective age-assurance systems, limits on how minors can interact with the chatbots, crisis safeguards, and the ability for users to delete their data.

James said the company collected some of the most private thoughts children have ever shared, and that those conversations could now be sold to the highest bidder. She said she is fighting to ensure any buyer puts children's safety first. Character.AI and Disney did not immediately respond to requests for comment.