Idaho Attorney General Raúl Labrador has joined a multistate effort to prevent sensitive personal information, including private conversations involving children, from being improperly transferred or sold during bankruptcy proceedings involving artificial intelligence chatbot company Character.AI.
Labrador announced Idaho’s participation in a coalition raising concerns about the company’s privacy practices, child safety protections and potential consumer protection violations.
Character Technologies Inc., the company behind Character.AI, filed for Chapter 11 bankruptcy protection in federal bankruptcy court in Delaware. The company operates a platform that allows users to communicate with AI characters designed to simulate conversations and relationships with real or fictional personalities.
Some chatbot characters have presented themselves as psychologists, therapists and medical professionals, raising concerns among state regulators about possible influence on vulnerable users.
“Corporate bankruptcy can’t undo the damage that Character.AI did to children in Idaho,” Labrador said. “We will hold this company accountable for their negligence and pursue whatever remedies are available in the distribution of their assets.”
Idaho and other states began investigating the company following a 2024 wrongful-death lawsuit alleging a chatbot developed an emotionally and sexually exploitative relationship with a minor, reinforced suicidal thoughts and contributed to the child’s death. Those allegations have not been established as findings of liability.
A central concern involves large volumes of sensitive information collected through chatbot conversations, including disclosures about mental health, family relationships and emotional difficulties.
The coalition has asked the bankruptcy court to consider restrictions on transferring or using consumer data and safeguards against a future purchaser weakening privacy protections.
Character.AI has voluntarily restricted minors’ access to certain features, but state officials argue those changes are incomplete and could be reversed under new ownership.
The states have reserved the right to challenge a proposed sale or restructuring plan that fails to protect consumer information. The court has considered sale procedures and the possible appointment of a consumer privacy ombudsman.
The proceedings raise broader questions about whether sensitive AI chatbot conversations can be treated as saleable corporate assets when an AI company enters bankruptcy. Idaho and participating states intend to remain engaged as the court considers asset sales and consumer protections.