5 min read
Millions of people, kids among them, have had deeply personal conversations with chatbots on Character.AI, according to North Carolina's attorney general. The platform allowed users as young as 13. Now the company behind the app is in bankruptcy court, and the question of what happens to all those saved conversations has landed in front of a judge.
Nearly 40 state attorneys general, the top legal officers of each state, have asked the court to attach privacy protections before any of the company's assets change hands.
What happened
On October 12, 2026, Character Technologies Inc., the company that runs the chatbot app Character.AI, filed for Chapter 11 bankruptcy in federal court in Delaware, Reuters and the company's own press release reported. Chapter 11 is the kind of bankruptcy that lets a company keep operating while it reorganizes or sells what it owns under a judge's supervision.
According to Reuters and Forbes, the app has about 12 million active users but is not profitable, losing roughly $8 million to $9 million a month. Court papers put its assets and liabilities each somewhere between $50 million and $100 million.
The opening offer came from Disney. Its $20 million bid would buy a permanent but non-exclusive license to certain Character.AI intellectual property and certain legal claims, plus transition help from former staff Disney has hired, according to the company's announcement. Other bidders can still top it. Disney had already hired the startup's former CEO, Karandeep Anand, as its chief technology officer, and Forbes reported it is taking on most of the workforce. Disney declined to comment to Reuters.
Two days after the filing, on October 14, a coalition of states filed a notice in the case asking the court to put privacy and safety first. Press releases from attorneys general in North Carolina, Pennsylvania, Michigan and California followed on October 15 and October 20. The states asked that users' sensitive information not be handed to any buyer without strong protections, that users get a chance to see and delete their data before a sale, and that limits be placed on how private conversations could be used afterward. The states also reserved the right to object to any sale or bankruptcy plan that falls short.
North Carolina Attorney General Jeff Jackson said users' personal conversations "shouldn't just become another asset they can sell to the highest bidder."
Character.AI has said little in public about user data. Its CEO, Colin Adams, said in the bankruptcy announcement that keeping the experience safe for its community remains a top priority, and that the board picked a court-supervised sale as the best way to get value for its stakeholders. In a blog post cited by Straight Arrow News, the company said user data remains protected under its privacy policy.
KRUDO's Fine Print
Disney's bid does not cover the chats. Forbes reported that Disney's deal leaves out user databases and chat histories. Forbes said the company is still looking for a buyer for its broader business. Straight Arrow News noted the company has not said whether chats are among the assets offered for sale, so it is not yet known who, if anyone, could end up holding them.
The states have not won anything yet. Their filings ask the judge for conditions and reserve the right to object later. None of the sources reports a court ruling on those requests so far.
Voluntary limits can disappear. Character.AI recently restricted some features for minors on its own. The attorneys general say those steps are not required, are incomplete, and could be reversed by a new owner.
The coalition numbers differ. Pennsylvania counted 38 attorneys general on the October 14 notice; Michigan counted 40, including D.C.; North Carolina's release lists Jackson plus 38 states and D.C. Each figure belongs to a different filing or count, which is why nearly 40 is the fair summary.
Deleting may not erase everything. Straight Arrow News reported that Character.AI's privacy policy lets it keep some data to meet legal duties or settle disputes, allows it to share some unspecified information in a sale of assets, and does not require a buyer to follow the same privacy terms.
Shutdown is possible. The company has said that if no buyer wants to keep the platform running, it will be wound down. Straight Arrow News reported the company has not said what would happen to user data in that case.
How this kind of thing happens
In a bankruptcy sale like this one, the aim is to get as much value as possible from what the company owns for the people it owes, under a judge's oversight. Customer data can count as an asset, just like equipment or software. U.S. bankruptcy law calls for an independent reviewer, called a consumer privacy ombudsman, when a sale of personal data would conflict with the company's privacy policy. Straight Arrow News noted that because Character.AI's policy allows data transfers in a sale, the company could argue one is not needed, though a judge can still appoint one.
Chat apps make this sharper than an ordinary customer list. A chat log can hold very personal details in a person's own words, which is why the states want rules attached before any transfer.
What it means for you
If you or your child never used Character.AI, this case does not touch your data directly. If you did, your conversations are part of a company now being sold under court supervision, and the final rules for them have not been set.
The company says it plans to keep the app running during the sale, and Straight Arrow News reported paid subscriptions remain active. But the coming weeks are expected to decide who, if anyone, takes over the business, and the attorneys general are trying to make sure any new owner has to follow binding privacy and safety rules rather than promises.
What you can do
- Talk to your teen. Ask whether they have used Character.AI and what kinds of things they shared, without judgment.
- Download a copy first if you want one. Straight Arrow News reported that users can download their data through the app or website.
- Then consider deleting the account. The same report says deletion is available, though the privacy policy allows some data to be kept.
- Know your state rights. California's attorney general says state law lets residents ask AI chatbot companies to delete their personal information and close their accounts.
- Check your attorney general's website. The attorneys general of North Carolina, Pennsylvania, Michigan and California have posted releases about this case.
- Think before you type. Treat any chatbot as a record that may outlive the company that runs it.
From the publisher · KRUDO Designs
This part is about our own product.
The free HOLLIS app for Android from KRUDO Designs is built and now in testing before launch. It talks to one place only: the HOLLIS H-Ai in your home. No company chat database. Your conversations stay in your household.
Sources
- North Carolina Department of Justice, Oct 20, 2026
- Pennsylvania Office of Attorney General, Oct 15, 2026
- Michigan Attorney General, Oct 15, 2026
- California Attorney General, Oct 15, 2026
- Forbes, Oct 23, 2026
- Reuters (via GV Wire), Oct 13, 2026
- Character.ai press release (Business Wire), Oct 12, 2026
- TechCrunch, Oct 13, 2026
- Straight Arrow News, Oct 13, 2026
This article is based on the published reports listed above, written in our own words. Details are as reported on the dates shown. Spotted an error? Email support@krudodesigns.net and we will correct it.
