Now that Character.AI is going bankrupt, what happens to all of its users’ data?
Character.AI has filed for Chapter 11 bankruptcy and is selling assets to Disney, prompting 40 state attorneys general to intervene. Regulators are concerned about the privacy and safety of user data, particularly regarding minors and sensitive chatbot interactions.
Why it matters
This case sets a significant precedent for how user data and safety protocols are handled when AI companies face insolvency.
New York Attorney General Letitia James revealed a years-long multi-state investigation against Character.AI as they now seek to require protections on consumer data sold through its bankruptcy proceeding.
James is among 40 bipartisan AGs who filed a notice of interest in Character.AI’s bankruptcy case “to put all parties on notice of the regulatory issues that will need to be addressed in any sale or transfer of the Debtor’s business or assets.” Character.AI announced Tuesday it was filing for Chapter 11 and selling some assets to Disney. But the AGs warn there could be serious risk involved in the transfer of the technology due to the “highly sensitive nature of the conversations many users have with Character.AI chatbot characters, the large number of minors who use the product, the serious risks posed by specific features of the product.”
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