The Character.ai sale that Disney opened with a $20 million bid now comes with a list of demands from state law enforcement. On October 14, a bipartisan coalition of 40 attorneys general filed a notice in the company’s bankruptcy case laying out the child safety and privacy protections they want from whoever ends up with Character.ai’s business or assets. Florida has since filed a joinder to the coalition’s notice, according to the court docket, bringing the total to 41.
Beyond those demands, the states reserved the right to seek an independent consumer privacy ombudsman and to object to proposed sale procedures or a bankruptcy plan.
What The States Want From Any Buyer
The list is long and specific. The attorneys general want age verification that goes beyond users typing in a birthday, safeguards against sexual, violent and other harmful content, and real responses when a user talks about suicide or self-harm. They also want chatbots that falsely claim to be licensed professionals, such as therapists, taken off the platform.
On privacy, they are asking for a full privacy program, clear disclosures about how personal data is used, working opt-outs from targeted advertising and limits on using private conversations to train AI or for other commercial purposes without valid consent. Users would also get a chance to see and delete their information before any sale goes through.
“I am fighting to make sure any buyer puts children’s safety first and puts real protections in place,” New York Attorney General Letitia James said. Colorado Attorney General Phil Weiser put it more bluntly: “Bankruptcy cannot become a way for a company to walk away from its responsibility to protect children and consumers.”
Several of the states, including New York, began looking into Character.ai after a 2024 wrongful-death lawsuit over the company’s chatbots. The company also holds a large amount of sensitive information, including users’ private conversations, which is why the states want privacy addressed in any sale.
Where Disney Fits In
Character Technologies, the company behind Character.ai, filed for Chapter 11 on October 12 in Delaware, and Disney signed on as the stalking horse bidder before the filing. As we reported when the case opened, Disney’s $20 million offer is for a non-exclusive, perpetual license to certain Character.ai intellectual property and certain company claims, plus transition services using former Character.ai employees Disney has hired or offered jobs to, a group Disney expects to pay about $60 million a year.
That is not the same as buying the app outright. The app, the brand, and user data and chats are not part of Disney’s deal, according to the deal documents. The states want those conditions to apply to whoever ends up with the deal, Disney included, and have reserved the right to object if they don’t.
Disney’s bid sets the floor, so other buyers can still come in higher. The court will consider the proposed bidding procedures at an October 30 hearing, with objections due October 23. Under the proposed schedule, bids are due November 20, an auction would follow November 23 if rival qualified bids come in, and a sale hearing would be held November 24. Character.ai has said it expects the sale to wrap up in late November or early December, and that the service will be wound down if no bid comes in that keeps it running.
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