State attorneys general want a say in what happens to the private conversations left inside Character.ai. In an October 14 bankruptcy filing, a coalition urged that any sale address protections for the people who used its chatbots—not just the assets a buyer wants.
The Character.ai bankruptcy began on October 12, when the company sought a court-supervised sale. Its public update says the platform remains available during that process, but warns it will be wound down if no actionable proposal supports continued operations. The company expects the sale process to finish in late November or early December; that is an expectation, not a fixed shutdown date.
The financial pressure is substantial. Reuters reported on October 13, citing court documents, that the company had roughly 12 million active users but was losing approximately $8 million to $9 million a month. Popularity had not translated into profitability.
What Disney’s offer actually covers
Disney’s involvement does not automatically solve the continuity problem. According to Character.ai’s announcement, Disney Worldwide Services agreed to act as the initial bidder for a non-exclusive, perpetual license to certain intellectual property and certain claims, offering $20 million plus transition services from former Character.ai employees it hired.
That proposal is subject to higher or better offers. The transition support is intended to help the platform operate for a limited period and support the sale process. It is not an announced purchase guaranteeing the chat service’s long-term survival.
The Character.ai bankruptcy also tests privacy promises
In an October 15 announcement, Michigan Attorney General Dana Nessel said voluntary safeguards could be reversed by a future owner. Her office highlighted the sensitivity of conversations about relationships, emotional struggles and mental health. The concern is about protections surviving a change in control, not a reported breach.
The states’ notice seeks meaningful consent for sensitive-data processing, limits on using chats for model training or other commercial purposes beyond valid consent, and an opportunity for users to delete their information before any sale of that data. It also calls for preserving restrictions protecting minors and avoiding misleading claims that characters are licensed professionals.
These are positions advanced by the states, not a court order approving those protections. The coalition reserved its rights to object to proposals and seek a consumer privacy ombudsman. The filing does not establish that Disney has bought user chats, that conversations have leaked, or that a final sale has been approved.
What users can do now
Character.ai’s FAQ says its privacy practices are unchanged, paid subscriptions remain active and billing continues for now. It also points users to options to export their data or delete their account through the app or website. Those options matter while the company pursues a buyer, but they are separate from the unresolved question of what protections a future transaction will carry.
The stakes therefore extend beyond whether the chat window stays open. A successful sale could preserve a service; durable safeguards would also need to address the sensitive information users entrusted to it. The states are pushing for both questions to remain on the table.
