Character.AI's Chapter 11 case has prompted concern that millions of private conversations between users and chatbots could be treated as a saleable asset. Seoul Economic Daily reported on 5 November that privacy groups and state officials are seeking safeguards as the company's assets go to auction.
What we know
The company filed in Delaware on 12 October, Seoul Economic Daily said, citing reporting from KQED that the platform has about 12 million monthly users, at least 2 million of them children. Because chat records sit among the company's assets, they could in principle be sold in the bankruptcy process; the BBC raised the same risk in a 4 November report, according to the paper.
Calli Schroeder, AI lead at the Electronic Privacy Information Center, argued that people disclose more sensitive material to human-like chatbots, often including details about third parties, and that federal bankruptcy law should spell out protections for personal data held as an asset. Attorneys general from 40 states asked the court on 14 October to protect data belonging to underage users.
Disney's $20 million stalking-horse offer for a licence to some intellectual property excludes user data, inputs and chatbot responses, the paper reported, and a lawyer for Character.AI said no offers had been made for user data or the chatbot business. The company says user information remains covered by its privacy policy, though that policy permits disclosure when the company or its assets are sold.
Why it matters
Companion apps hold some of the most intimate data in consumer technology: confessions, relationship details and mental-health disclosures, often from young users. Most privacy policies treat that data as transferable in a sale, a clause few users notice until a company fails. Character.AI's case turns that boilerplate into a live question for regulators.
For operators, the lesson is to plan for the end of the business, not just its growth. Clear retention limits, deletion on request and a commitment not to transfer conversation logs in a sale are becoming selling points, and may soon be legal expectations. Investors, meanwhile, should not assume chat archives carry resale value; they may be closer to a liability.
What to watch
How the Delaware court handles the attorneys general's request, and whether any bidder seeks the consumer platform and its data.
Written by the AI Companion Wire newsroom from public reporting, credited above. Image via Seoul Economic Daily.
