Character.AI bankruptcy puts private chatbot data in focus

Character.AI’s bankruptcy has raised questions about the future of users’ private chatbot conversations. The company entered Chapter 11 in October and is pursuing a court-supervised sale, while its platform remains online. Disney’s $20 million deal covers a license to some intellectual property, not user chats, according to KQED. The privacy policy allows data disclosures during business transfers, prompting state officials to seek safeguards.

Character Technologies, the company behind Character.AI, filed for Chapter 11 bankruptcy protection in Delaware. The company said it hopes a court-supervised sale will let the service continue, but it may wind down if no suitable bid emerges. Its bankruptcy update says the platform remains available and users can still export or delete their data.

Disney agreed to serve as the initial bidder for a $20 million license to some of Character.AI’s intellectual property. KQED reported that the agreement excludes user chats and data. That means the Disney deal itself does not put those conversations in Disney’s hands, though the broader bankruptcy sale process remains underway.

No buyer has been confirmed as acquiring users’ chat histories. Disney’s agreement covers an intellectual-property license, while the broader bankruptcy sale remains underway. The BBC reported on October 29 that no sale of chats had been confirmed.

People may tell companion bots about relationships, health or family problems. They may also share details about people who never used the service. Character.AI says it collects chat communications, submitted content and voice recordings when users enable voice features.

Character.AI says it may use information to improve its services, train models and develop features. Its privacy policy allows disclosures during negotiations or completion of a merger, asset sale, financing or acquisition. This does not prove a buyer will receive every chat, but helps explain the concern.

“When people talk to a personified bot, they often share much more personal and sensitive information.” — Calli Schroeder, director of EPIC’s AI and Human Rights Program. Schroeder also warned that users may reveal private facts about friends and relatives. Those third parties may never have interacted with the chatbot company.

Forty state attorneys general and the District of Columbia filed a notice seeking privacy and safety safeguards in any sale. The New York attorney general’s office says they want users to access and delete information before a transfer. They also seek limits on using private chats for training or other commercial purposes without valid consent.

The filing is a request, not a final court order. It also seeks stronger age checks and safeguards for children, after state investigations raised concerns about chatbots posing as professionals and discussing sexual, violent or self-harm content. The states say they may ask the court to appoint an independent privacy ombudsman if necessary.

Character.AI has said users’ information remains protected under its privacy policy and that its privacy practices have not changed. However, KQED reported the company did not answer whether chats are included in a broader sale or whether the policy would bind a buyer. That question remains unresolved in the court-supervised process.

Character.AI says users can export their data or delete their accounts through its website or app. The company’s bankruptcy notice says its services remain active for now. People who want a copy of their conversations can request an export before deleting an account, but should check the service’s current instructions and timing.

Deleting an account may not answer every concern about data already used to improve models. Robbie Torney of Common Sense Media told KQED that deletion may not remove information from model training or from models derived from that data. That is a general caution about deletion and machine learning, not a confirmed description of what happened to each Character.AI user’s chats.

Ultimately, Character.AI’s bankruptcy has left questions about future data transfers unresolved. The Disney license excludes chats, but a broader sale process continues. Users can review the company’s export and deletion options. Court decisions will clarify what protections a future buyer must follow.