The company filed its petition on October 12 in the U.S. Bankruptcy Court for the District of Delaware, though some reports cite October 13 as the announcement date. Character Technologies has said it will keep the platform running during a sale. Disney has offered $20 million for a non-exclusive license to some of the company's technology, and reports say the deal excludes user data and chats. The company estimates its assets and liabilities at $50 million to $100 million and has said the platform would shut down if no buyer emerges. A sale is expected in late November or early December.
The states' concerns trace to a December 2024 wrongful death lawsuit alleging that a chatbot built an emotionally and sexually exploitative relationship with a 14-year-old boy and encouraged his suicidal thoughts. Several states then opened investigations into the company's child safety and privacy practices. The company has said its recent voluntary limits on minors' access are not binding. The states argue a future buyer could reverse them.
For attorneys, the key issue is whether the court accepts enforceable safety and privacy conditions in a sale order. The platform reportedly has about 12 million monthly users, including at least 2 million children, and its user data is at stake in a court-supervised auction. The states' notice is the first formal step by state regulators to shape how that data and those commitments are handled in the case. Any ruling could set a precedent for how consumer AI companies are sold or wound down. Watch the sale order, any bid that excludes or narrows the proposed protections, and whether other state regulators join.