Your AI Conversations Could Be Sold in Bankruptcy. Massachusetts Is Trying to Stop That.

If you or your kids ever used Character.AI, you may have told a chatbot things you’ve never told another person: struggles with mental health, relationship problems, things you were ashamed of. Now the company behind those chats is in bankruptcy, and everything it collected is part of what’s being divided up.

On October 14, 2026, Massachusetts Attorney General Andrea Joy Campbell joined a coalition of state attorneys general in filing a notice in Character.AI’s bankruptcy case. The states are demanding that any sale of the company’s business or assets include real protections for users’ privacy and for children.

What Character.AI Is

Character.AI lets users chat with AI “characters” built to imitate human conversation and relationships. Some are fictional personas or celebrity imitations. Some are cartoon characters popular with kids. And some present themselves as therapists, psychologists, or doctors.

That last category is the problem. People went to these characters to talk about depression, anxiety, loneliness, and their relationships. The company saved those conversations.

Why the States Got Involved

Several states, Massachusetts among them, began investigating Character.AI after a 2024 wrongful death lawsuit. That suit alleged the company’s chatbots built an emotionally and sexually exploitative relationship with a teenage boy, reinforced his suicidal thoughts, and contributed to his death.

By the time the company filed for bankruptcy on October 12, 2026, according to reporting by WIRED, 46 states and territories were part of the investigation. The attorneys general say their investigations uncovered serious problems, including chatbots allegedly encouraging minors to hide self-harm. Character.AI disputes that characterization of its platform.

Why Bankruptcy Puts Your Data at Risk

When a company goes bankrupt, its assets get sold to pay creditors. For a tech company, one of the most valuable assets can be its data, including yours.

Federal bankruptcy law offers some protection. If a company’s privacy policy promised not to transfer users’ personal information, the court generally can’t approve a sale of that information unless it appoints a “consumer privacy ombudsman” to review the deal, or the sale fits the original policy. We saw this play out in 2025, when the genetic testing company 23andMe went bankrupt and states fought over what would happen to millions of people’s DNA data.

But those protections depend on what the privacy policy said and how hard someone pushes. That’s why the states are stepping in now, before a sale is approved.

The Disney Angle

According to WIRED’s reporting on the court filings, Disney has already hired most of Character.AI’s employees, including its former CEO, and wants a broad license to the company’s technology. That license is set to be auctioned, and WIRED reports that the technology on the list does not include user data.

That’s good news, but it isn’t the end of the story. The data still belongs to the bankrupt company’s estate, and what ultimately happens to it hasn’t been settled. The states have reserved the right to challenge any sale or bankruptcy plan and to push for more protections.

What You Can Do Now

The simplest step is to delete your data. If you or your child used Character.AI, log in and delete your conversation history and your account. Information that’s gone before a sale can’t be sold. If there’s anything in there you want to keep, download a copy first.

If you have kids, it’s worth asking whether they used the app. Many young users treated these characters as friends or confidants and may have shared more than you’d expect. A calm conversation will get you further than a lecture.

Going forward, it helps to remember that a chatbot isn’t a therapist, no matter what it calls itself. It isn’t bound by the confidentiality rules a licensed professional follows, and health privacy laws like HIPAA generally don’t apply to these apps. A good rule of thumb is to assume anything you type into a chatbot could someday be read, sold, or subpoenaed.

Finally, keep an eye on your email. If the bankruptcy court approves any sale or transfer involving user data, there may be a notice process that gives users a chance to respond.

The Bigger Lesson

We’ve spent years learning that “free” social media apps make money from our data. AI chatbots take that much further. People don’t just post photos; they pour out their private thoughts, often late at night, often when they’re struggling.

When the company holding those conversations goes under, users have almost no say in what happens next. Right now, state attorneys general are the main thing standing between those conversations and the highest bidder.

Massachusetts has been active on this front. In 2024, AG Campbell issued guidance on how the state’s consumer protection, anti-discrimination, and data security laws apply to AI. In 2025, her office reached a $2.5 million settlement with a student loan company over AI lending models alleged to harm Black, Hispanic, and non-citizen borrowers.

If you or someone you know is struggling, call or text 988 to reach the Suicide and Crisis Lifeline, available 24/7.

Jake Dressler is a Massachusetts and Connecticut attorney with an office in Springfield. For questions about your privacy rights or consumer protection issues, call (860) 913-0210 or email [email protected] for a free consultation.