THE SHORT VERSION
Character.AI filed Chapter 11 on 12 October. Disney has agreed to pay $20 million for the technology, IP and most of the staff — but not the user data. Forty state attorneys general went to court on 14 October to ask who protects it.
Character.AI filed for Chapter 11 late on Monday 12 October. At its first hearing on 14 October, before US Bankruptcy Judge Brendan Shannon in Wilmington, Delaware, attorneys for 40 state attorneys general asked the court to impose child-safety and data protections on whatever emerges from the sale.
The deal on the table is unusual. Disney has agreed to pay $20 million to license Character.AI's technology and intellectual property and to hire most of its staff — and has explicitly said it does not want the user data. The agreement needs court approval and remains subject to higher offers. Character.AI's own attorney told the court that no buyer has yet offered for the user data or for the operating chatbot business.
That is the gap the states are pointing at. Abigail Ryan, speaking for them, said any buyer should protect users' chat histories and improve safety features, and that the states do not want past problems to "start over with a new purchaser". New York attorney general Letitia James issued a separate statement. The company wants to use the bankruptcy to resolve the states' investigations and lawsuits at the same time — which is precisely why the AGs turned up.
Sources
Reuters wire report