Can Character.AI sell your chat data in bankruptcy?

What is happening with Character.AI's bankruptcy and user data?

Character Technologies, the company behind Character.AI, filed for Chapter 11 bankruptcy in Delaware in mid-October 2026. A bipartisan group of 40 attorneys general has since warned the court that any sale of the app or its users' chats will have to meet strict conditions. The coalition covers 39 states plus the District of Columbia. Its 28-page notice of interest lists nine regulatory conditions that any buyer would face. New York's attorney general also revealed that several states had been investigating the company since 2024 over privacy, consumer protection and child safety. She put it bluntly: the company collected some of the most private thoughts children have ever shared, and those conversations could now go to the highest bidder.

The business side moved fast. The company says it will keep the app running during a court-supervised sale, and it has agreed to sell certain assets to Disney for about $20 million. In its first-day filings, it disclosed roughly 163 million current and past user accounts. In the same filings, it argued that those users aren't creditors entitled to individual notice of the case. Reports disagree on whether the Disney deal includes anyone's conversations, and at least one says the bid leaves user data out. The company says your information is still protected under its privacy policy and that its practices haven't changed. That sounds reassuring until you remember who owns the privacy policy. The company does, and the company is what's for sale.

What the states want is specific. Their list includes age checks, limits on how minors interact with chatbots, crisis safeguards and a working way for users to delete their data. They also want users to get a chance to access and delete their information before any sale, plus protections that bind whoever buys the business. The data they're worried about goes well past usernames. It includes chat and call content, mental-health and other health-related disclosures (including from minors), and behavioral and engagement data. One detail matters a lot: the notice doesn't block anything by itself. It preserves the states' right to object to a sale or a bankruptcy plan, so the final outcome is still undecided.

Can an AI company legally sell your chats in bankruptcy?

Often, yes. US bankruptcy law treats customer data as property of the estate, and it can be sold like servers or trademarks, with guardrails. The big guardrail is the company's own privacy policy. If the policy promised users their personal information wouldn't be transferred, the court generally can't approve a sale that breaks that promise unless it first appoints a consumer privacy ombudsman. That ombudsman reviews the deal and recommends conditions, such as requiring the buyer to honor the old policy or to delete certain data. Regulators can also step in, and that's what the attorneys general are setting up here. So the honest answer to whether AI companies can sell your chats is that it depends on the promises made and who is watching.

There's a clear track record. In 2000, the failed toy retailer Toysmart tried to sell its customer list despite a privacy pledge. After the FTC stepped in, its majority investor paid to have the list destroyed. In 2015, RadioShack's bankruptcy sale drew objections from dozens of states and the FTC, and the customer data that changed hands was cut back sharply and came with limits. The closest parallel is 23andMe in 2025. The genetic testing company went bankrupt and the DNA data of millions of customers went up for sale. States objected loudly. In the end the data went to a nonprofit led by the company's co-founder, under privacy commitments. In each case, the data was treated as a valuable asset.

Chat logs are a different kind of asset from a mailing list. A mailing list tells a buyer your email address. A chat history can show your fears, your health, your relationship problems, your business plans and the late-night thoughts you'd never post anywhere. Most privacy policies also include a clause saying your information may be transferred in a merger, acquisition or bankruptcy, which means you agreed to it in advance without noticing. Here's an opinion I'll stand behind: privacy promises are worth less than data minimization. A policy can change hands along with the company. Data that was never kept, or was deleted on request, can't be sold to anyone.

How do you export and delete your Character.AI data now?

Export first, then delete. You can request a copy of your data from your account settings, then permanently delete the account once the copy arrives. On the web, open your profile, go to Profile Settings, then Account, then Manage Account & Data, and choose Export Data. In the mobile app, tap your profile, open the settings icon and look for the export option under the legal and privacy section. Be patient, because the company's help center has said exports can take weeks to process. When the export is ready, you get an email with a download link that expires after about a week. Save the file somewhere you control. Don't leave it in the inbox where it landed.

Deleting the account comes next, and it can't be undone. On the web, it's in the same Manage Account & Data panel. If you can't see the button on a laptop, scroll to the bottom right of the Account panel. In the app, the remove option sits below the export and sign-out buttons. You'll be asked to type your username to confirm. If you pay through the App Store or Google Play, cancel that subscription separately, because deleting your account may not stop the billing. For a fuller erasure, submit a privacy request through the company's help center. The privacy policy allows some data to be kept for legal reasons, and public characters you created can stay live.

Should you bother exporting at all? If you don't need those conversations, my advice is to skip it and delete now. Waiting weeks for an archive keeps your data on the company's servers for longer. If you live in a state with a consumer privacy law, such as California, Colorado or Virginia, you also have a legal right to request deletion, and the company must respond within set deadlines. Parents should check whether their teenagers have accounts, because minors' conversations are exactly what the attorneys general are worried about. Then take a minute to list the other AI apps on your phone. The same questions apply to every one of them, and the next section turns them into a checklist.

What should you check before trusting any AI assistant with your data?

Before you hand an AI assistant anything personal, check five things: who owns your data, whether it can be sold or transferred, how to export it, how to delete it, and whether it's used to train models. You can answer all five with fifteen minutes and the privacy policy. Start with ownership. Most companies say you own your content but give them a broad license to use it. That license is what transfers in a sale, so look at how wide it is. Then search the policy for the words "merger", "acquisition" and "bankruptcy". If those words show up, your data is treated as a business asset that can move to a new owner.

Deletion is where policies get slippery. Check whether there's a real delete button or just a form, how long backups are kept, and whether deleting one conversation actually removes it or only hides it from your screen. Look for an export option too, because you can't leave easily without your history. Training deserves its own question. Some services use your chats to improve their models, and once your words are part of a trained model, deleting your account won't pull them back out. If there's an opt-out, use it. Finally, check which phone or computer permissions the assistant has, since an app can sometimes see more than you typed. Our guide to checking what an AI agent can read on your devices walks through those settings.

The last check is about you, not the company. Decide what you won't share with any assistant, however good its policy looks. Passwords, full card numbers, medical details you wouldn't want leaked and other people's secrets all belong on that list. It isn't paranoia. If an assistant ends up with a new owner, the safest data is data it never received. It helps to sort your requests into two buckets: admin and confessions. "Remind me to renew the van insurance on March 3" is admin, and it's low-risk to store. A long late-night conversation about your marriage carries far more risk. Use the table below as a quick pass before you sign up.

How should you think about privacy when an AI assistant runs your admin?

Treat it like hiring a human assistant. Give it what it needs to do the job, and know where its notebook goes if the agency closes. That's the real lesson of the Character.AI bankruptcy for anyone who delegates. An assistant that sets your reminders, keeps your notes and reads your contracts ends up holding a detailed map of your work life. Agent Sonic is one of those assistants. It lives in WhatsApp, and you message it like any contact: "Remind me to call the accountant every Monday at 9", "Note that the Haifa client wants invoices in shekels", or "Read this lease and tell me the notice period." Each of those messages is useful, and each is data. You should ask the same five questions about Sonic that you'd ask about any other assistant.

In practice, that means being deliberate about what goes in. Sonic's memory is built to keep context so you don't have to repeat yourself. "My VAT deadline is the 15th" and "Dana handles our payroll" are exactly the kind of facts it should hold onto. That's the point of an assistant that remembers your notes and preferences. What it doesn't need is your bank password or a scan of your passport. When you forward a contract for review, cut out pages that aren't relevant if they contain sensitive personal details. For group chats, remember that everyone in the group can see what the assistant posts there. These habits cost almost nothing, and they keep your exposure small whoever owns any service down the line.

My last piece of advice is the most practical: ask before you trust. Don't take any company's word for granted, ours included. Read the privacy policy, and if something about ownership, deletion or transfer isn't clear, ask in writing and keep the reply. Sonic is available now. If you'd like to try it with these questions answered first, get access here: leave your details, and you'll get Sonic's number and a short onboarding where you can ask what's stored and how to remove it. Pricing is on the website if you want to compare plans. Hand off the admin by all means, but stay the one who decides what your assistant knows.

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