On October 14, 2026, nearly 40 state attorneys general led by Colorado Attorney General Phil Weiser filed in court as part of Character.AI's bankruptcy proceedings. They demand that any sale of the business or assets of Character Technologies, Inc. include strong protections for children and consumers. According to the data, the company's chatbots collected users' most personal conversations — messages about mental health, relationships, and emotional struggles.

This came a day after the company filed for bankruptcy on October 13, 2026. That same day Disney offered to buy the company's assets for about $20 million. The attorneys general say user-data and child-safety guarantees must be resolved before sale terms are agreed.

What the prosecutors asked the court for

According to the Colorado attorney general's official press release, the states demand the following safeguards:

  • effective age verification beyond self-declaration;
  • protection from sexual, violent, and other harmful content;
  • proper responses to self-harm or suicide signals;
  • removal of chatbots posing as licensed professionals;
  • clear transparency on personal data use and an opt-out from targeted advertising;
  • restricting the use of personal conversations for AI training or other commercial purposes without proper consent;
  • giving users the ability to view and delete their data before any sale.

"Bankruptcy must not become a way for the company to escape its responsibility to protect children and consumers," said Attorney General Weiser. "We are working with prosecutors across the country so these concerns are resolved and consumers are protected regardless of who owns the company."

New York Attorney General Letitia James is also part of the coalition. Her office reported more than 20 million monthly users on the platform, including over 2 million accounts self-identified as under 18.

What data is at risk

The prosecutors say Character.AI stores vast amounts of sensitive user data: children's and adults' personal chatbot conversations, voice calls, mental-health disclosures, age and device identifiers. The company used this data for revenue and to train AI models; through bankruptcy the data could pass to a new owner.

Independent tests uncovered serious cases: in 50 hours using accounts opened in the names of 12–15-year-olds, 669 harmful interactions were recorded — one every five minutes. In tests, chatbots portraying adults flirted with child accounts, undressed them, and simulated sexual relationships; some told children to hide these "relationships" from parents. One chatbot advised a 13-year-old girl to secretly stop her antidepressant; others offered a 15-year-old armed robbery, promising drugs.

The platform was found to host chatbots posing as mental-health professionals — one still active, presenting itself as a "PhD-level licensed clinical psychologist." Therapy chatbots in tests disparaged psychiatric medications and told users to disregard professional advice.

Background: the 2024 lawsuit

Several states, including Colorado, began investigating Character.AI after a wrongful-death lawsuit that started in 2024. The suit alleged the company's chatbots formed an emotionally and sexually exploitative relationship with a 14-year-old, intensified his suicidal thoughts, and contributed to his suicide. State investigations found very serious risks and potential legal violations in the company's treatment of children.

Character.AI recently voluntarily restricted some chatbot features for users identified as under 18. But the prosecutors emphasize these measures are not mandatory, are incomplete, and could easily be circumvented or reversed by a new buyer.

New York already has a new law in force on requirements for AI companion companies: firms must take reasonable measures to detect and respond to expressions of suicide or self-harm, and remind users at the start of each conversation and at least every three hours that they are talking to an AI.

The prosecutors intend to keep actively participating in the bankruptcy proceedings and have reserved the right to object to any proposed sale or bankruptcy plan and to request the appointment of an independent ombudsman for consumer personal-data protection. The coalition includes the attorneys general of New York, California, Arkansas, Alaska, Connecticut, Delaware, the District of Columbia, Hawaii, Idaho, Illinois, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, Wisconsin, and West Virginia. The states reserved the right to object to any proposed sale procedures or bankruptcy plan — meaning the court can make safeguards mandatory before handing the company's assets to a new owner.