Character.AI Lawsuits: Every Case, the Settlements, and What the Bankruptcy Changes

Character.AI has faced three kinds of legal pressure: private lawsuits from families, actions by state governments, and demands from federal and foreign regulators and rights holders. The table below is the short version, using the status each case had as of October 2026.

Yes, the main family lawsuits were settled in January 2026. On January 7 and 8, 2026, Character.AI and Google told courts they had agreed to settle suits brought by families in Florida, Colorado, New York and Texas, according to Bloomberg Law and other outlets. The terms were not disclosed, and the settlements needed to be finalized. Character.AI's chief executive later told the bankruptcy court that all personal injury suits pending at that time had settled, and that one new suit, filed in August 2026 in the Northern District of California, was the only one still outstanding.

Google was a defendant because of its 2024 deal with Character.AI, a reported US$2.7 billion licensing agreement that also brought Character.AI's founders, Noam Shazeer and Daniel De Freitas, back to Google. Google is not part of the bankruptcy, which matters for the August 2026 case and any future claims (see below).

Megan Garcia sued Character Technologies, its founders and Google in October 2024 in federal court in Orlando, Florida, after the death of her 14-year-old son, Sewell Setzer III, in February 2024. Her lawsuit alleged that he became dependent on a chatbot modeled on a "Game of Thrones" character and that the product was designed without adequate safeguards for minors.

The case became the leading test of whether chatbot output is protected speech. In May 2025, Senior US District Judge Anne Conway rejected Character.AI's request to throw the case out on First Amendment grounds, writing that she was "not prepared" at that stage to hold that the chatbots' output is speech. She also allowed claims against Google to proceed. That ruling, reported by AP, raised the stakes for every AI companion company, and the case moved to settlement in January 2026.

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Two states have gone beyond investigating and filed suit. Kentucky Attorney General Russell Coleman sued Character Technologies and its co-founders on January 8, 2026, in Franklin Circuit Court, alleging that the app preys on children and violates the Kentucky Consumer Protection Act and the Kentucky Consumer Data Protection Act. His office described it as the first state lawsuit against an AI chatbot company over harm to children, and it seeks civil penalties and a court order. According to Character.AI's own filing, the case was at the motion to dismiss stage when the company entered bankruptcy.

Pennsylvania sued on May 1, 2026 with a different angle. Governor Josh Shapiro's administration, through the Department of State on behalf of the State Board of Medicine, asked the statewide Commonwealth Court to stop Character.AI chatbots from unlawfully practicing medicine, after a state investigator searched "psychiatry" and found a character presented as a "doctor of psychiatry" that claimed it could assess the investigator as a Pennsylvania-licensed doctor. The administration called it a first-of-its-kind enforcement action by a governor, according to AP.

Forty-six. Character.AI told the bankruptcy court that it learned in November 2025 that state attorneys general were investigating, that the group grew to 46 states and territories, and that it was in talks over a consent order when it filed. Those talks now run alongside the bankruptcy.

The states have also moved inside the bankruptcy case itself. On October 14, 2026, attorneys general from 39 states and Washington, D.C. filed a notice listing nine conditions for any buyer, which according to KQED include real age verification, removing bots that pose as therapists, doctors or lawyers, limits on training AI with user chats, and letting every user delete their data before a sale. California Attorney General Rob Bonta joined 22 other states in a separate notice on October 15. Florida joined the coalition's filing on October 20, and Kentucky, New Jersey and Pennsylvania filed appearances in the case between October 15 and October 22.

On October 23, 2026, 31 states and the District of Columbia filed a formal objection to Character.AI's proposed sale rules (Docket 66). They asked the court to extend the bid deadline by at least 21 days, to move the deadline for objecting to the sale until after the winning bidder is named, and to rethink the break-up fee Disney would collect if outbid, and they kept open whether a consumer privacy ombudsman is required because Disney staff can reach user data under the transition services agreement. The court hears the objection with the sale rules on October 30.

On September 11, 2025, the Federal Trade Commission ordered seven companies that offer AI companion chatbots to explain how they measure and limit harm to children and teens. The recipients were Alphabet, Character Technologies, Instagram, Meta Platforms, OpenAI, Snap and xAI. The orders ask how the companies make money from engagement, how they develop and approve characters, and how they test for negative effects before and after launch.

A Section 6(b) study is a fact-finding power rather than a lawsuit, so it does not carry fines by itself. It does put Character.AI's internal practices on the record with a federal regulator at the same moment a court is deciding who may buy the company.

The FTC's interest started earlier than the public study. According to Character.AI's declaration, the agency sent a civil investigative demand on January 15, 2025 about possible unfair or deceptive practices and the collection of data from children, paused that investigation around August 26, 2025, and then issued its Section 6(b) order on September 10, 2025. Character.AI says its last response to the order was submitted on July 31, 2026.

Disney's lawyers sent Character.AI a cease-and-desist letter dated September 18, 2025, accusing it of reproducing and monetizing Disney's protected characters without permission, and raising child safety concerns about how those chatbots behaved. Character.AI removed the Disney characters, a spokesperson told NBC News, while saying that characters on the platform are made by users and that it responds quickly to takedown requests.

The twist came a year later. In the bankruptcy, Disney agreed to pay US$20 million for a non-exclusive license to Character.AI's technology, a deal that excludes user data, chats, the app and the brand, and it is spending about US$180 million over three years on the 66 staff it is hiring, according to the filings. Disney also hired Character.AI's former chief executive, Karandeep Anand. Read the full sale breakdown on Is Character.AI shutting down?

Beyond the 46-state group, Character.AI told the bankruptcy court about separate investigations in Florida, New Mexico and Texas, and it named the dates. The table comes from the chief executive's sworn first-day declaration, filed October 13, 2026.

The 46-state group negotiates through an executive committee of seven states, and Character.AI says it hopes to settle with that group during the bankruptcy. For context, the company's own filing points to Meta's August 2026 settlement with a bipartisan coalition of 51 attorneys general, in which Meta agreed to pay US$17.1 billion in penalties and change its products. That is the scale of state action now hanging over companion apps.

Character.AI's declaration lists three foreign regulators that have acted, and two have already fined it. They matter to users outside the US because they show how each country treats companion chats.

Any buyer of Character.AI's assets would answer to the same regulators, and the company's own filing says it was this legal and regulatory overhang that drove earlier investors away.

Chapter 11 freezes most private lawsuits against Character.AI the moment it files. Under section 362 of the Bankruptcy Code, the automatic stay stops lawsuits and collection efforts against the debtor, and the court entered an order restating and enforcing that stay worldwide. That is why the August 2026 personal injury suit is paused rather than moving to trial.

Injury claimants do not lose their claims. They become creditors of the estate, and personal injury and wrongful death claims are tried in a federal district court rather than decided by the bankruptcy judge. With about US$57 million in cash at filing and no outside financing, the size of the estate, and how much of it reaches injury claimants, depends on the sale.

Using Character.AI does not make you a creditor. The company told the court it does not believe its roughly 163 million current and past users are creditors entitled to notice, and that emailing all of them would cost too much, so it posts notices on its blog, the Stretto case website and the app. If you believe you or your child was harmed, speak with a lawyer about whether you have a claim and the deadline to file it. For everyday users, the practical steps are about data: export your chats now, and delete your account if you do not want your data in the sale.

Character.AI also changed its product under this pressure. In October 2025 it announced it would end open-ended chat for users under 18, one of the largest safety changes any companion app has made.

They set the terms every companion app now lives under: courts are not treating chatbot output as automatically protected speech, states are suing over minors and fake professionals, and a company's legal exposure can scare off every buyer. Our comparison of apps like Character.AI scores each alternative on staying power for exactly this reason.

Afterlife.ai™ was designed around the opposite questions. It is for adults 18 and over. A Persona is a living AI version of you, built by you from your own memories and stories and speaking in your own cloned voice, not a character impersonating a celebrity, a therapist or a doctor. Afterlife.ai™ never recreates someone who did not consent while alive. And Executor Lock™, our patent-pending governance layer, lets you name your executor and Trusted Contacts in advance, so at your death your Persona is locked exactly as you approved it and nobody can edit, retrain or impersonate you. Idy has 78 patents pending on this governance work. See how Executor Lock™ works, who owns your AI twin after you die and the side-by-side on Afterlife.ai™ vs Character.AI.

The next date is October 30, 2026 at 10 a.m. Eastern, when the bankruptcy court hears Character.AI's proposed sale rules. Under the proposal, bids are due November 20, an auction would follow November 23, the sale hearing is November 24 and the deal must close by December 17. The meeting of creditors is set for November 19 by Zoom, and other first-day motions return to court on November 17.

Watch three things. Whether any buyer bids for user data and chats, whether the states ask for a consumer privacy ombudsman, and whether the 46-state consent order lands before the sale. Each one decides what happens to the people who used the app, and we update our Character.AI bankruptcy page as rulings come in.

• Bloomberg Law: Character.AI, Google Agree to Settle Teen Chatbot Harm Lawsuits

• WUFT (AP): In lawsuit over teen's death, judge rejects arguments that AI chatbots have free speech rights

• Texas Standard: Texas parents sue after AI chatbot suggests self-harm to child

• The Record: Kentucky attorney general sues Character.AI

• WPTV (AP): Pennsylvania sues Character.AI claiming bots posed as real doctors

• FTC: FTC Launches Inquiry into AI Chatbots Acting as Companions

• NBC News: Character.AI removes Disney characters from platform after request

• Stretto: Declaration of Colin M. Adams in support of the Chapter 11 petition (Docket 18)

• CourtListener: Character Technologies, Inc., docket 26-11603

• KQED: Your Chatbot Just Went Bankrupt. What Happens Now to Your User Data?

• Cornell Law School LII: 11 U.S. Code section 362