Character.ai bankruptcy raises fears over private chatbot data

Character.ai’s bankruptcy is raising concerns about the fate of sensitive conversations held by AI companies. The company agreed to sell some assets to Disney for ?m (£14.95m), excluding user data. However, court filings say its data can be sold to other buyers. A coalition of 40 US state attorneys general has asked the judge to impose child safety and privacy protections.

Privacy experts warn that chatbot conversations can contain unusually intimate disclosures, including information about friends and relatives who never used the service. Bankruptcy exceptions in privacy policies can weaken protections users assumed would apply. Buyers generally must follow the original policy, but Character.ai’s terms allow data to support new features, AI training, algorithm development and profiles for targeted advertising.

High operating costs and uncertain profitability could push more AI businesses into mergers or closures, making their data attractive assets in bankruptcy proceedings. Stronger privacy rules, including those in the EU, do not necessarily prevent such sales. Character.ai says it has settled lawsuits involving harm to young users and is working with families on safer products, but did not answer specific questions about children’s privacy.

Users can reduce exposure by requesting deletion of sensitive information, particularly from services they no longer use. Privacy settings, company policies and customer support can provide instructions, though deletion rights vary by jurisdiction.