Kentucky joins states’ filing in Character.AI bankruptcy case

The coalition filed its notice in the bankruptcy case of Character Technologies, the company behind Character.AI.[1] The notice raises safety and privacy concerns and calls for protections for children and consumers if the company’s business or assets are sold.[1] The states say the filing preserves their right to challenge a proposed sale or bankruptcy plan and seek additional safeguards for consumers’ personal information.[1]

Character.AI said it initiated a voluntary Chapter 11 bankruptcy process to facilitate a court-supervised sale, and said it was pursuing a sale of all or substantially all of its assets.[3] The company also said its platform would be wound down if no actionable bid was available.[3] At the time of its update, Character.AI said the platform remained operational and users could continue accessing its services.[3] The Verge reported that the bankruptcy announcement included a sale of some assets to Disney.[4] The states’ notice focuses on protections in any sale; it does not, in the evidence available here, establish the outcome of the bankruptcy process.[1]

Character.AI lets users converse with AI-powered characters designed to mimic human conversation and relationships.[1] The coalition says the service collected sensitive information through chats, including private conversations about mental health, relationships and emotional struggles.[1] The states’ filing describes the service as having more than 20 million monthly active users and more than 185 million monthly website visitors.[5] It also says that by March 13, 2025, more than 21.6 million U.S. accounts had been created, including more than 2.1 million accounts with a declared age under 18.[5]

The states say they opened a probe into consumer-protection and privacy concerns in 2024, following a lawsuit from the mother of a 14-year-old.[4] Coleman’s lawsuit accused Character.AI of preying on children and leading them into self-harm.[1] Kentucky’s Attorney General’s Office said a Franklin Circuit Court had ruled the previous week in favor of unsealing the state’s entire lawsuit against the company.[1] New York Attorney General Letitia James said the coalition warned that Character.AI should not be sold without strong protections for people whose private conversations it holds.[6] The states also said measures they considered were noncompulsory and incomplete, and that a future purchaser could circumvent or reverse them.[2]