US wants a privacy check in the Character.AI bankruptcy sale

The bankruptcy of Character.AI can end in a sale of its assets. Its users, some of them minors, have private chats with its chatbots.

On a Tuesday, the bankruptcy office of the US Justice Department wrote to the court. It wants the court to name a consumer privacy ombudsman. This is an adviser who tells the court how to set the terms for a sale of user data. Character.AI has 12 million active monthly users. They spend an average of two hours each day on the platform. The judge can limit the sale.

What the court document says

The office tells the court that the privacy policy is not clear. The policy says the firm can disclose personal data, and can move it if the firm is sold. The firm changed the policy on 1 July, while it tried to sell its assets.

The proof

The court document quotes the chatbot. If users want to know, it tells them that it will not share their chats without explicit permission. The policy does not say the same. Seven or more families have sued the firm. They tell the court that the chatbot caused suicide or mental health injury.

What is not known

Character.AI did not reply to a request for comment. The source names no buyer. Sydney Saubestre of the Center for Democracy and Technology tells that a buyer can change data practices if users consent. Saubestre wants users to opt in to the sale of their data.

Insight: Bankruptcy courts decide who gets private data

In March 2025, the bankrupt firm 23andMe sold personal data. Google offers $10 million to the bankrupt Spirit Airlines for employee data to train models. A bankruptcy court seems to be the gate where private data changes owner. The plans of the buyer can matter more than the policy that users accepted. Tell each chatbot vendor to state who owns your data if it fails.