At Character.AI's first bankruptcy hearing on October 14, a group of 40 state attorneys general urged a Delaware judge to protect young users and keep their data safe during the case. Character Technologies filed for Chapter 11 on October 12.

The company plans to use the case to address state investigations and lawsuits, license technology to Disney for $20 million, and look for a buyer willing to take on the chatbot business. The states say they are negotiating a settlement and want any buyer to protect chat histories and improve safety features.

Character.AI says its app remains operational during the process. The filing follows lawsuits and scrutiny over companion chatbots' interactions with children, which are central to the states' case.