Character.AI has officially filed for Chapter 11 bankruptcy, marking a significant shift for the artificial intelligence company. As part of its restructuring process, the company has announced plans to sell a portion of its assets to Disney. This development has prompted immediate action from a bipartisan coalition of 40 state attorneys general, led by New York Attorney General Letitia James.

The attorneys general have filed a notice of interest in the bankruptcy proceedings, signaling their intent to oversee how consumer data is handled during the transition. The primary concern expressed by the regulators is the potential risk to user privacy if data is sold or transferred as part of the company's asset liquidation. The filing serves as a formal warning to all parties involved that any sale of the business must address specific regulatory requirements regarding the protection of consumer information.

While the company moves forward with its bankruptcy filing, the intervention by state officials highlights the growing scrutiny surrounding the sale of user data in the tech sector. The attorneys general are seeking to ensure that the bankruptcy process does not bypass existing legal protections for users. At this stage, the specific terms of the asset transfer to Disney remain subject to the oversight of the bankruptcy court and the regulatory concerns raised by the state officials.