Character.AI is bankrupt: what happens to your chats?

First published in GetPack Magazine, sourced guides to use AI well as a student.

For five years, millions of people told their worst days to characters on Character.AI. On October 12, 2026, the company behind the app filed for Chapter 11 bankruptcy protection in the United States. Two days later, 40 attorneys general wrote to the judge for one simple reason: in a bankruptcy, conversations do not vanish, they change owner.

In short: Character Technologies Inc. started a voluntary Chapter 11 process in the US Bankruptcy Court for the District of Delaware, with estimated assets and liabilities between 50 and 100 million dollars. Disney is the stalking-horse bidder at 20 million dollars, but only for a non-exclusive perpetual licence to part of the intellectual property: not the app, not the user chats. On October 14, 39 states and the District of Columbia filed a 28-page notice asking the judge to impose nine conditions on any buyer, including real age verification and a right to delete your data before the sale. Character.AI’s privacy policy already allows the data it collects — chat transcripts, voice recordings, images — to be passed on in an asset sale. The lesson for you is not « avoid chatbots »: it is that an AI tool’s exit door should be checked before you walk in, not on the day it dies.

What happened: Chapter 11 on October 12, 2026

Character Technologies Inc., the US company behind Character.AI, filed for Chapter 11 in the Bankruptcy Court for the District of Delaware. Chapter 11 is not a liquidation: it is a court-supervised reorganisation, used here to run a sale of the assets. The company’s own post is dated October 12, 2026; the press covered it on the 13th, and TechCrunch dates the filing to that day. The case is docketed as 26-11603 (BLS) before Judge Brendan L. Shannon, according to PPC Land.

Court documents list assets and liabilities of 50 to 100 million dollars, per TechCrunch and NBC News. CEO Colin Adams blames « significant legal, regulatory and operational headwinds », CBS News reports. In plain terms: litigation and regulatory pressure cost more than the business brought in.

The trajectory is dizzying. Founded in late 2021 by Noam Shazeer and Daniel De Freitas, two former Google engineers, the company raised a 150 million dollar Series A in September 2022, hit 20 million monthly active users by October 2024, and saw Google licence its models for 2.7 billion dollars in August 2024 while rehiring both founders. Four years later, it is worth less than a high-end Paris flat.

The platform stays online during the process. Paid subscriptions remain active and billing is unchanged « for now », the company writes, promising to warn subscribers in advance if a paid feature changes. Colin Adams is blunt about the alternative, quoted by TechCrunch: without a bid, « the platform will be wound down ».

Disney at 20 million: what a stalking-horse bid is, and what it does not buy

Disney Worldwide Services is acting as the stalking-horse bidder. The mechanism: a first buyer commits contractually before the auction, which sets a floor price and reassures the court. Everyone else then has to beat it. The amount: 20 million dollars for a non-exclusive perpetual licence to some intellectual property and certain company claims, plus transition services. Those services will be delivered by former Character.AI employees Disney hired the month before — including Karandeep Singh Anand, the company’s former CEO, according to TechCrunch.

Here is the part nobody should miss: according to Straight Arrow News and PPC Land, Disney’s offer excludes user data, chats, the app itself and the finished models. Disney is buying characters and code, not your history. Which means your history stays in the pool of assets for sale, available to someone else.

The calendar is tight. PPC Land gives the agreed dates: bid deadline November 20, 2026, auction November 23, sale hearing November 24, outside date December 17. The company itself says the sale should close « end of November or perhaps early December 2026 ».

October 14: 40 attorneys general go to the Delaware judge

On October 14, 2026, a bipartisan coalition led by New York Attorney General Letitia James filed a Notice of Interest: 28 pages, three exhibits running to more than 300 pages in total, on behalf of 39 states and the District of Columbia — 40 jurisdictions.

What the states allege is documented. According to the New York Attorney General’s release, independent testing found 669 harmful interactions across 50 hours of use on accounts registered to children aged 12 to 15: roughly one every five minutes. The largest category, 296 instances, was grooming and sexual exploitation. One still-active chatbot described itself as a « licensed clinical psychologist with a PhD ». On an account registered to a 14-year-old, simply switching from text mode to voice mode was enough to reach sexual role-play and weapon-building instructions.

Each attorney general puts it their own way. Charity Clark, for Vermont: « Filing for bankruptcy does not absolve a company of its obligations under consumer protection laws. » Nick Brown, for Washington State: « Character.AI’s chatbots have lured youth into manipulative online relationships that have encouraged them to plan violent attacks, abuse drugs, and hurt themselves. » William Tong, for Connecticut: the bots drove vulnerable youth « down a rabbit hole of emotionally volatile and sexually inappropriate chats ».

Their legal argument fits in one sentence: the safeguards Character.AI adopted voluntarily are not compulsory, they are incomplete, and a future purchaser could circumvent or reverse them. Hence nine conditions, listed by PPC Land, that any buyer should have to accept: age assurance that does not rely solely on self-declared birthdates; protections keeping minors away from harmful content; removal of characters posing as therapists, psychologists, doctors or attorneys; crisis safeguards on self-harm and substance abuse that cannot be defeated; a privacy programme with risk assessments and prior consent for sensitive data; account-level advertising opt-outs; limits on using chat data beyond what users validly consented to; a chance for all users to delete their data before any sale of that data; and no misleading claims about safety or character credentials. The states reserve the right to challenge any sale or bankruptcy plan.

Your chats are an asset: the clause you need to spot

Character.AI says user information « continue(s) to be protected under our Privacy Policy » and that its privacy practices are unchanged. That is accurate, and that is exactly the problem.

The policy allows the company to disclose certain information in connection with, or during negotiations of, any merger, sale of company assets, financing or acquisition. KQED spells out what that covers: chat transcripts, voice recordings, images and videos. Straight Arrow News notes the wording has been in place at least since August 2025, that it never defines what « certain information » means, and that it does not require a buyer to honour the existing privacy commitments.

That clause has a mechanical consequence in US law. The bankruptcy code requires a consumer privacy ombudsman to be appointed when selling personal data would conflict with the company’s privacy policy. Here the policy already allowed the transfer, so Character.AI can argue no ombudsman is needed — though the judge is still free to appoint one. As of October 13, nobody had asked, Straight Arrow News reports.

One last detail that shows the balance of power: per PPC Land, the company argues its 163 million current and past users are not creditors entitled to individual notice, because serving them all would be « cost-prohibitive ». Of 21.6 million US accounts created through March 2025, more than 2.1 million were registered to minors.

Export and delete: three to four weeks, a link valid for seven days

The company points to two functions available in the app and on the website: data export and account deletion. The timing matters as much as the procedure. According to the help documentation relayed by KQED, an export takes three to four weeks to arrive, and the download link expires seven days after the email is sent.

Run the numbers against the court calendar. A request filed in mid-October lands around mid-November, just before the November 20 bid deadline. A request filed in late November lands after the sale hearing. Robbie Torney, head of AI and digital assessments at Common Sense Media, gives the order of operations in KQED: download your chats first if you want to keep them, then delete your account.

The order is not a detail: deleting the account before the export arrives can cost you both. And if you are wondering why it matters, Calli Schroeder, senior counsel at the Electronic Privacy Information Center, answers in Straight Arrow News: this kind of data makes it possible to target people’s vulnerabilities and is an « extremely attractive » target for hackers.

From Europe: the GDPR applies, even to a US company

A US company in bankruptcy in Delaware is not out of reach. Article 3 of the GDPR applies to the processing of data of people located in the Union by a controller not established in the Union, where the activity relates to offering goods or services to those people in the Union. An online service accessible and used from France or any other member state falls within that scope.

In practice, three rights are useful here. The right of access, to obtain a copy of the data held about you. The right to data portability, to get your data in a reusable format. The right to erasure, to have it deleted. The CNIL, the French data protection authority, states the deadline: the organisation must reply as soon as possible and within one month at the latest, extendable to three months for complex requests provided it tells you within the first month. The same rule applies to erasure. With no satisfactory answer after a month, you can lodge a complaint with your national authority, attaching proof of your earlier request.

One reflex that costs two minutes and changes everything: send your request in writing, with a date, and keep the copy. That is the evidence you will need later.

Another European development weighs on this kind of service: since August 2, 2026, Article 50 of the EU AI Act requires providers of systems designed to interact directly with people to make sure users know they are talking to an AI, unless that is obvious. A character presenting itself as a qualified psychologist is not covered by that exception.

A chatbot calling itself a psychologist is not one

The most serious part of this file is not financial. In October 2025, Character.AI announced it would end open-ended chat for under-18s from November 25, 2025, using an in-house age-verification model backed by an external provider. The company was reacting to a run of lawsuits: a wrongful-death claim filed after the suicide of a 14-year-old in Florida, since settled, plus actions from Kentucky and Pennsylvania, notably over bots posing as health professionals.

A year later, the attorneys general note those restrictions are still voluntary, and therefore reversible by a buyer. And the testing cited by the New York Attorney General’s office found characters presenting as therapists discouraging psychiatric medication and urging users to ignore medical advice.

For a student, the rule is simple and has no exception: a language model has no degree, no professional body, no liability. It can help you understand a psychology lecture or revise a concept. It is not a care provider. If things are not going well, your university health service or a national crisis line exists for that — 3114 in France, 988 in the United States.

What this changes for you

Judge an AI tool on its exit door too. Before you trust a service with anything, look for three things: does a data export exist, does account deletion actually work, and what does the privacy policy say about a sale? The « merger, sale of company assets, financing, or acquisition » clause is standard. It becomes concrete the day the company collapses.

Treat the delays as deadlines. Three to four weeks for an export and a seven-day link is not a formality, it is a schedule. Export first, delete second.

Do not confuse free with consequence-free. Character.AI never charged most of its users. What has value in this bankruptcy is the conversations.

Separate what you write to an AI from what you would write to a friend. The practical test: before sending a message to a chatbot, ask whether you would accept it ending up in a file bought by a company you have never heard of.

From Europe, you have real leverage. Access, portability, erasure, a one-month deadline, then a complaint to your data protection authority. These are rights, not favours.

Our reading

This case says something new about the economics of consumer AI. A company valued in the billions in 2024 ends up in 2026 with a main asset that is neither its technology — Google already licensed that — nor its brand, but the intimate memory of 163 million people. It is the sharpest definition we have seen of what a user actually hands over when using a free service.

The intervention of the 40 attorneys general deserves to be taken seriously for a reason that goes beyond child safety: it targets a blind spot in the law. A privacy policy that itself anticipates selling the data in a bankruptcy neutralises the safeguard designed for exactly that situation. The clause that informs the user is the clause that strips them of a protection. Legally impeccable, practically absurd.

What we take from it: « what happens to my data if this company disappears? » is no longer an expert question. It belongs in the basic reflex of anyone installing an AI app, alongside price and answer quality. Character.AI will at least have made that reflex obvious.

FAQ

Should I delete my Character.AI account right now?

If you want to keep your conversations, request the export first, wait for it, download it within seven days, then delete the account. The export takes three to four weeks according to the documentation relayed by KQED, and the sale calendar runs to December 17, 2026.

Is Disney getting my chats?

No, according to Straight Arrow News and PPC Land: Disney’s 20 million dollar offer covers a non-exclusive licence to intellectual property and certain claims, not the app and not user data. That data stays in the assets for sale, so potentially for another buyer.

Is the platform shutting down now?

No. It stays online during the process and subscriptions are billed normally. But CEO Colin Adams warned that without an acceptable bid, the platform would be wound down.

Does the GDPR protect me against a US bankruptcy?

It gives you enforceable rights: access, portability, erasure, with a reply due within one month. It does not guarantee an outcome in a US court, but a dated written request, followed by a complaint to your data protection authority if nothing comes back, is the strongest route available from Europe.

How do I spot this clause in another app?

In the privacy policy, look for « merger », « acquisition », « sale of assets » — or « fusion », « cession d’actifs », « transfert d’entreprise » in French. They almost always sit in the section about sharing data with third parties.