40 state AGs seek data protections in Character.AI bankruptcy

By Splitfeed EditorialLast updated Oct 14, 2026, 19:00 UTC

On Tuesday, October 14, 2026, Character.AI filed for bankruptcy, and a coalition of 40 bipartisan state attorneys general moved quickly to intervene. New York AG Letitia James and Colorado AG Phil Weiser are among those who filed a formal notice of interest in the bankruptcy case, with the stated goal of ensuring that consumer data protections are built into any sale or transfer of the company's assets. The filing also disclosed that a multi-year multi-state investigation into Character.AI had already been underway before the bankruptcy was announced.

The core issue is what happens to the personal data of Character.AI's users, which is effectively a major asset in any bankruptcy proceeding. Character.AI built its service around highly personal, often emotionally intimate conversations, making its user data particularly sensitive. The attorneys general are signaling that no buyer can simply absorb that data without first satisfying outstanding regulatory concerns, a position that could complicate or delay a sale and reduce the asset's value to potential acquirers. The bankruptcy adds urgency to questions that were already live in the multi-state investigation.

None of the three camps have published reactions to this story yet. The Pro-AI camp would typically argue that overregulation of a data sale could harm users more than it helps them, by slowing the transition to a new owner who might better maintain the platform. The Anti-AI camp would typically treat this situation as confirmation that AI companion platforms pose inherent risks to vulnerable users and that robust regulatory oversight during bankruptcy is essential. The Middle Ground camp would typically call for clear data governance rules applied consistently, neither blocking a sale outright nor allowing data to transfer without meaningful safeguards.

The argument will likely be settled, or at least advanced, when a bankruptcy court rules on the notice of interest and sets conditions for any asset sale. Watchers should follow whether the court imposes data protection requirements as a precondition, and whether the multi-state investigation produces formal enforcement actions that further constrain a buyer's options.