Character.AI Bankruptcy: 40 States Want Safety Rules Attached to Disney Asset Sale
Forty state attorneys general, including New York's Letitia James, have filed a notice of interest in Character.AI's Chapter 11 bankruptcy case. The Verge The company has filed for Chapter 11 and said it will sell some assets to Disney.
The notice does not block the sale. It tells the court and potential buyers that consumer protection and privacy issues must be resolved as part of any transfer of the business or its assets.
Those issues go back to 2024, when several states opened a joint investigation into Character.AI's consumer protection and privacy practices. That investigation came after the mother of a 14-year-old who died by suicide sued the company, saying the death came seconds after a conversation with a Character.AI chatbot.
According to the states, investigators found chatbots that claimed to be licensed professionals, exposed users to sexual and violent material, relied on weak age checks, made misleading claims about safety, and may have broken state privacy laws.
The attorneys general want the bankruptcy court to require any buyer to add effective age-assurance systems — methods to check a user's age at signup and during use — limits on how minors can use chatbots, safeguards for users in crisis, and clear options to delete user data.
James said Character.AI had collected children's private thoughts that could be sold to the highest bidder and said any buyer must put children's safety first with real protections. On October 14, 2026, the New York Attorney General's press-release index listed an entry titled 'Attorney General James Urges Court to Protect Children and Consumers in Character.AI Bankruptcy.' New York Attorney General press index
The bankruptcy notice follows a separate action on chatbots. On October 7, 2026, Attorney General Sunday led a bipartisan coalition of 42 attorneys general in a letter to AI software companies asking for safeguards to protect vulnerable residents from harmful bot interactions. Pennsylvania Attorney General's office The letter was addressed to Anthropic, Apple, Chai AI, and Character Technologies.
The broader context here is that an AI sale does not only move models and servers. It also moves conversation histories, accounts belonging to minors, and the duty to keep safety systems working. The states are treating those as part of the deal.
In my view, the focus is on continuity of responsibility, not on stopping the sale. The pairing that matters most for product teams is age assurance and deletion. One controls future access. The other deals with history already collected. If this becomes standard in sales of consumer AI systems, checking data stores will matter as much as checking code and computing power. That still leaves open larger questions about companion bots and young users, but it points to a setup where protections survive a change in ownership and users keep practical control over their information.
