Character.AI Bankruptcy: 40 States Set Rules for Chat Sale

The Character.AI bankruptcy now puts the private conversations of millions of users up for sale, and a coalition of 40 state attorneys general wants strict rules attached to any buyer. The group, made up of 39 states and the District of Columbia, submitted a 28-page filing to the US Bankruptcy Court for the District of Delaware on Wednesday, October 14, 2026. The notice says whoever acquires the app, its conversation logs, or both must first meet nine binding safety and privacy conditions.

Character Technologies, the company behind the app, filed for Chapter 11 on October 13, 2026, listing assets and liabilities between $50 million and $100 million. Walt Disney is the stalking-horse bidder with a $20 million offer for certain intellectual property, but that agreement leaves out the app, the brand and user data. The filing cites 21.6 million US accounts, including more than 2.1 million accounts declared as belonging to users under 18.

What the nine conditions require

The conditions call for effective age checks and the removal of bots that present themselves as doctors, therapists or lawyers. They also prohibit using chat content to train models in ways users did not agree to. The states reserve the right to ask the court to appoint a consumer privacy ombudsman if a buyer does not meet the terms.

The stakes are concrete. The coalition says Character.AI holds private chats, voice calls, mental health disclosures, ages and device identifiers. The attorneys general argue that even anonymized conversations can contain details about jobs, families and hometowns that point back to an individual.

Timeline and open questions

Bids are due November 20, with the auction set for November 23 and the sale hearing for November 24, 2026. Disney's outside closing date is December 17, 2026. Company figures cited in the coverage include about 12 million monthly active users, per a CEO declaration, and roughly $2.5 million in advertising revenue for August 2026.

Disney's license does not cover end-user data, and no filing so far states whether chats will be offered for sale. Character.AI's privacy policy permits data sharing during a sale of company assets, which means the chats could change hands depending on how the bidding process treats them. Lawsuits from Kentucky and Pennsylvania add to the pressure on the company.

Why this matters

Users who shared mental health details or personal relationship histories have no direct say in who buys those records. The nine conditions are the states' attempt to put the privacy burden on the buyer, and the November hearings will show whether the court accepts that approach.

Sources

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Researched and cross-referenced against primary sources by the Bytevyte editorial team. This article was generated with the assistance of artificial intelligence and reviewed by the Bytevyte editorial team.