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AI Policy Desk

Character.AI: from state lawsuits to Chapter 11

Two state lawsuits and a GDPR fine over minors, then a Chapter 11 filing to sell the company and 40 attorneys general stepping into the case. The steps in order, with what happens to users next.

7 steps · Updated

Character.AI spent 2026 answering regulators about children. Kentucky and Pennsylvania sued, and Italy's privacy regulator fined it over age checks. In October the company filed for Chapter 11 to sell itself, with Disney as the opening bidder. The filing calls AI entertainment costly to build; it doesn't blame the lawsuits, so we don't either. Two days later, 40 attorneys general told the court that any buyer must protect children and users' chats.

The timeline

  1. Kentucky's attorney general sues Character.AI, saying it preyed on children

    Source

  2. then

    Pennsylvania sues, saying Character.AI bots posed as licensed psychiatrists

    Source

  3. then

  4. then

  5. in response to ↑

    40 attorneys general, Wisconsin among them, tell the court any buyer must protect kids and users' chats

    SourceSource for “in response to”

  6. then

    Next

    Court hearing on the sale's bidding procedures and Disney's opening bid; objections due October 23

    Source

  7. then

    Next

    Sale expected to close by the end of November or early December (company estimate)

    Source

What to watch next

  • : Court hearing on the sale's bidding procedures and Disney's opening bid; objections due October 23 (source)
  • : Sale expected to close by the end of November or early December (company estimate) (source)