States seek protection for children’s chat data in Character.AI bankruptcy

Character.AI, the AI companion platform, filed for Chapter 11 bankruptcy in Delaware late on Monday, October 12. Two days later, a coalition of 40 state attorneys general asked the court to make sure that any buyer of its assets protects users’ chat histories and keeps safety features in place, Reuters reported. “This company has collected some of the most private thoughts children have ever shared, and now those conversations could be sold off to the highest bidder,” New York Attorney General Letitia James said.

In their notice to the court, the states list what they expect from a purchaser: age checks that do not rely only on self-declared birthdates, continued limits on minors’ access to open-ended chats, removal of characters posing as therapists or doctors, and no use of chat content for model training or advertising beyond what users agreed to. Users should also get the chance to delete their data before any sale.

Disney has agreed to pay $20 million to license Character.AI’s technology and has hired most of its staff, but according to the company’s attorney it is not interested in the user data. No buyer has yet bid for the chats or the chatbot business. The company blamed legal costs and the price of computing power and talent, saying it was losing $8 million to $9 million a month.

For many users, those logs are the relationship itself. A bankruptcy turns them into an asset on a balance sheet.