Character.AI Files for Bankruptcy: What Happens to Your Chats

What Character.AI filed, and why

According to CNBC, Character.ai filed for Chapter 11 protection on Monday 12 October in the Delaware bankruptcy court, citing a company release and the court papers. The filing says the business of AI entertainment “has proven to be costly to develop and grow”, and that high costs, “coupled with potential litigation related liabilities and regulatory engagement”, left the company unable to generate enough cash to support the business in its present form.

Chief executive Colin Adams said a court-supervised sale gives the company the best opportunity to maximise value for all stakeholders. Before filing, the company agreed that Disney would serve as the stalking-horse bidder: it offered $20 million to license some of Character.ai's intellectual property and to receive transition services through former employees it has hired. A stalking-horse bid sets a floor price; other buyers can still bid more. SAN reports the company expects the process to finish in late November or early December 2026.

The legal backdrop is heavy. Kentucky sued the company in January 2026 under its consumer-protection and data-protection laws (we covered the unredacted Kentucky complaint last week), Pennsylvania has sued over chatbots that claimed to be licensed medical professionals, and SAN notes the company had already settled five lawsuits in four states.

What happens to your chats?

This is the question most users will care about, and the honest answer is that it is not settled yet. SAN reports that the company has not said whether user chats are among the assets being sold. Its blog post says user data “continues to be protected under our Privacy Policy”. But that policy, in language in place since at least August 2025, allows the company to disclose “certain information” during the negotiation or closing of a sale of company assets, without defining what that information is.

The rule that decides it

US bankruptcy law has a specific safeguard here. Under section 363(b)(1) of the Bankruptcy Code, if a company's privacy policy promised not to transfer personal information to unaffiliated parties, that information can only be sold if the sale is consistent with the policy, or if a consumer privacy ombudsman is appointed under section 332 and the court approves the sale after a hearing. Because Character.AI's policy already mentions transfers in a sale, SAN notes the company could argue that no ombudsman is needed, although a judge can still appoint one. As of 13 October, no one had asked the court to do so. In the 23andMe bankruptcy, a group of states pushed for an ombudsman and the court appointed one.

What 40 attorneys general are asking for

On 14 October, New York Attorney General Letitia James announced a bipartisan coalition of 40 attorneys general that filed a notice of interest in the case. The coalition says the company collects private chats and voice calls, mental-health disclosures, ages and device identifiers, uses that data to make money and train its AI, and that the data could pass to a buyer through the bankruptcy. It wants the court, the company and any buyer to commit to:

• age verification that goes beyond self-declared birthdays;
• safeguards against sexual, violent and other harmful content, and appropriate responses to suicidal or self-harming users;
• removal of chatbots that falsely claim to be licensed professionals;
• a comprehensive privacy program, clear disclosures and effective opt-outs from targeted advertising;
• limits on using private conversations for AI training or other commercial purposes without valid consent;
• a chance for users to access and delete their information before any sale.

The coalition also says it may ask for an independent consumer privacy ombudsman or object to the sale procedures. Its release puts the platform at more than 20 million monthly users, including more than two million accounts registered to users who said they were under 18, and cites independent testing that found 669 harmful interactions in 50 hours on accounts registered to children aged 12 to 15. These are the states' allegations and test results, not findings by a court.

What is known and what is not

What you can do now

If you use Character.AI, the next few weeks are the window to act while the current owner and privacy policy still apply:

• Download your data. SAN reports that users can still download their data or delete their account through the app or website. Our guide to exporting AI companion chat history explains what an export usually contains.
• Save the characters you built. Copy definitions, greetings and example dialogue somewhere you control; see character card portability for formats other apps can import.
• Know the limits of deletion. The policy lets the company keep information “as necessary to comply with our legal obligations, resolve disputes, and enforce our agreements”, and a public character you created may stay active after you delete your account.
• Check your subscription. The company says it intends to notify subscribers in advance if paid features change. Note your renewal date in case the platform is wound down.

Why this matters beyond one app

Your conversations with a companion or roleplay character are an asset on someone's balance sheet. Most users never read the “business transfer” clause in a privacy policy, but this case shows when it matters. Before you commit years of chats to any app, check whether it lets you export and delete your history, and whether its policy says what happens to your data in a sale. Our privacy checklist lists the questions to ask. We will update this page when the court rules on the sale or on an ombudsman.

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