Your Chatbot Just Went Bankrupt. What Happens Now to Your User Data?
Redwood City-based Character Technologies, maker of one of the best-known AI companion chatbots, Character.AI, has faced lawsuits from families who alleged its chatbots contributed to their children’s suicides and self-harm. It’s also been the target of regulators pushing for age verification tech because of its popularity with kids. Character.AI’s CEO told the court that 46 states and territories are investigating the company.
This week, the company filed for bankruptcy in Delaware. In a sworn declaration, CEO Colin Adams cited the company’s high legal costs, struggle to become profitable, and potential investors’ concern over litigation.
Disney, which sent Character.AI a cease-and-desist letter last year over unauthorized use of its characters, has offered $20 million to license some of the company’s technology. That deal leaves out users’ data and chats, so any sale of the chats would be to a different buyer.
So what happens next for the roughly 12 million monthly users, including at least 2 million kids who, according to the company’s legal filings, spend about two hours a day on the platform?
“There’s a lot of kids’ data that is in the Character AI system and is potentially for sale now,” Robbie Torney, Head of AI & Digital Assessments at Common Sense Media, told KQED.
“A lot of people think of chatbots, and they think of ChatGPT, or Claude, or Gemini, which are these multi-use chatbots that can be used for all kinds of different things. Character AI is maybe one of the best-known examples of a class of AI chatbots that are designed to simulate relationships. They could pretend to be your best friend, your neighbor, a character from a video game or a book. They could pretend to be anything.”
On Wednesday, attorneys general from 39 states and the District of Columbia, including California, filed a notice in the case detailing nine conditions they want any buyer to meet, according to the digital advertising trade publication PPC Land, which reviewed the filing.
They include real age verification, removing chatbots that pose as therapists, doctors or lawyers; limits on using chats to train AI, and the chance for every user to delete their data before a sale. The states said they may ask the court to appoint a consumer privacy ombudsman, an independent official to advise the judge on the privacy consequences of a sale.
“Our most sensitive personal information is not an asset to be bought and sold, especially during a fire sale after bankruptcy,” Electronic Frontier Foundation senior staff attorney Mario Trujillo wrote KQED.
But Torney said this particular case demonstrates the dangers of allowing a private company to hold a huge amount of sensitive, personal data. “You can export your data, and you can delete it, but that may not mean that that data is gone from model training or from models that have been derived from that data,” he said.
He pointed to 23andMe, whose customers’ genetic data was sold in bankruptcy last year to a nonprofit led by the company’s co-founder, despite lawsuits from more than two dozen states.
Torney’s advice to Character.AI’s users: “Delete your account now and download your chats first if you want to keep them.” Character.AI’s help center said data exports can take three to four weeks, and the download link expires after seven days, so users should request the export, wait for the email, then delete. An export requested now should arrive before the sale’s Dec. 17 closing deadline.
Asked whether users’ chats are among the assets for sale, a Character.AI spokesperson referred KQED to an online FAQ, which said users’ information “continues to be protected” under the company’s privacy policy and that users can delete their accounts or export their data. The company did not say whether chats are part of the sale or whether that policy would bind a buyer.
“Everyone clicked through and agreed to the privacy policy,” said Torney. “But I don’t know if there was, especially for teenagers, a real understanding that, down the line, in the future, the contents of these chats might become public or be sold to another company for uses that users were not originally intending.”