40 attorneys general ask court to shield Character.AI user data in sale

40 attorneys general ask court to shield Character.AI user data in sale

20 October 2026: North Carolina Attorney General Jeff Jackson and the attorneys general of 38 other states and the District of Columbia have asked the bankruptcy court handling Character.AI's parent company to stop the chatbot service's users' private data being sold to a buyer without strong privacy and safety protections. They want users to be able to access and delete their data before any sale.

Not yet independently verified. Reuters reports the states addressed US Bankruptcy Judge Brendan Shannon in Delaware on 14 October 2026 and that no buyer had yet bid for the user data. We have not seen the filing, so the case number and the debtor's legal name are not stated here. We will update this when it can be confirmed, and remove this note.

Update, 10 November 2026: Reuters has since supplied the court details. It reports that 40 state attorneys general urged US Bankruptcy Judge Brendan Shannon in Wilmington, Delaware, to protect users' data at the first hearing in the case, after Character.AI filed for Chapter 11 late on 12 October. Its lawyer, Erin Fay, told the court that no buyer had yet offered for the user data or the chatbot business. Reuters also reports that Disney is paying $20 million for a licence.

What the states are asking for

Character.AI runs chatbots built around "characters" designed to mimic human conversation and relationships, some of which presented themselves as psychologists, therapists and doctors, and it allowed children as young as 13 to use the platform. The attorneys general warn that it holds a large amount of sensitive data, including private conversations involving children and talk about users' mental health, relationships and emotional struggles. With the parent company seeking bankruptcy protection, the question is whether that information can be sold with the rest of its assets.

The coalition wants the court to treat the issue as a priority and to bar any transfer of users' sensitive personal information without protections, including the right to access and delete data before a sale and limits on how private conversations may be used afterwards. The states reserve the right to object to any proposed sale or bankruptcy plan that does not protect consumers.

"This will be an important test case for what happens to our personal data when an AI company goes bankrupt. We need to get the rules right," Jackson said.

The background

North Carolina is one of several states investigating Character.AI after a 2024 wrongful-death lawsuit concerning a child who used its chatbots; the states say their investigation found potential consumer protection and privacy violations. They add that Character.AI's recent voluntary limits on minors' access to some features are incomplete and could be reversed by a future owner.

Why it matters beyond one company

Customer data is often among the most valuable assets an insolvent software company has, and bankruptcy sales have long raised the question of whether privacy promises survive the sale. AI chatbots raise the stakes, because their logs hold intimate conversations rather than purchase histories. Any business that feeds customer or employee conversations into a chatbot provider should check what its contract says about data return, deletion and assignment if the provider is sold or fails.

Sources

• North Carolina Department of Justice: Attorney General Jeff Jackson asks court to protect kids' data in AI company bankruptcy, 20 October 2026
• Reuters via WHBL: US states seek children's data protections in Character.AI bankruptcy, 14 October 2026