Character.AI’s bankruptcy could leave prospective buyers unable to distinguish children’s sensitive conversations from adult user data, according to a new court filing by 40 attorneys general seeking safeguards for the company’s proposed sale.
In an October 14 notice filed with the US Bankruptcy Court in Delaware, the coalition said inadequate age checks between 2022 and 2025 likely resulted in significant amounts of children’s information being categorized as adult data.
Chat records may include health disclosures, relationships, and identifying details dispersed through extended conversations. The filing argues that removing account identifiers may not protect users whose messages reveal where they live or work. Historical chats may also be difficult to filter by age once collected.
Sponsored · Altamira Gold Corp.
The company had more than 2.1 million US accounts registered by self-declared users younger than 18 among more than 21.6 million US accounts created by March 13, 2025, according to figures cited from a Kentucky enforcement complaint.
Character Technologies filed for Chapter 11 on Monday as it seeks buyers for its assets. Disney Worldwide Services is the initial bidder under a $20 million agreement covering a perpetual, non-exclusive license to certain intellectual property and claims, plus transition services.
At Wednesday’s hearing, Character.AI attorney Erin Fay said no buyer had offered to acquire its user data or operating chatbot business, Reuters reported.
The company also said its privacy and security practices remain unchanged. Users can export their data or delete accounts while the platform continues operating.
Sponsored · Cambria Gold Mines
The attorneys general are seeking access and deletion rights before any data sale, account-level advertising opt-outs, limits on secondary use of chat records, and safeguards that survive a change in ownership.
The coalition also wants stronger age verification and restrictions on chatbots claiming professional credentials.
The recent filing cited September 2025 research by ParentsTogether Action and the Heat Initiative, whose adult testers documented 669 harmful interactions across 50 hours using accounts registered to children aged 12 to 15.
Those results predate the bankruptcy and do not establish a platform-wide prevalence rate.
Character.AI has restricted open-ended chats for users it identifies as minors. The states maintain that historical data classifications remain unresolved and other features are still accessible to minors.
The AI firm expects to conclude the sale process by late November or early December. Without a viable buyer to continue operations, the company plans to wind down the platform.
The attorneys general have reserved the right to seek a consumer privacy ombudsman or challenge proposed sale procedures, leaving treatment of historical user records unresolved.
