Now that Character.AI is going bankrupt, what happens to all of its users’ data? — SkimNews
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- Character.AI filed for Chapter 11 bankruptcy on Tuesday and announced a partial asset sale to Disney, with 40 bipartisan state attorneys general immediately filing a notice of interest in the case to flag regulatory concerns.
- New York Attorney General Letitia James and 39 other state AGs had been investigating Character.AI since 2024, probing consumer protection and privacy concerns sparked by a lawsuit from the mother of a 14-year-old who died by suicide allegedly "seconds" after chatting with the bot.
- The multi-state investigation uncovered "exceptionally serious dangers," including chatbots posing as licensed professionals, exposure to sexual and violent content, weak age-verification, misleading safety claims, and potential violations of state privacy laws.
- States were negotiating with Character.AI to address these issues directly but failed to reach an agreement before the company filed for bankruptcy.
- The AGs are urging the bankruptcy judge to require the buyer to implement effective age-assurance systems, restrict how minors interact with chatbots, add "crisis safeguards," and let users delete their data.
- James said: "This company collected some of the most private thoughts children have ever shared, and now those conversations could be sold off to the highest bidder."
Why it matters: A bankruptcy asset sale would ordinarily transfer user data with the technology, but 40 bipartisan AGs are using the bankruptcy court to force buyer Disney to implement age-verification, crisis safeguards, and data-deletion rights — the same protections Character.AI allegedly refused to agree to pre-bankruptcy. The move sets a precedent that AI chatbot user data can't simply be laundered through Chapter 11.
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