Michigan seeks consumer protections as AI chatbot company files for bankruptcy

Attorney General Dana Nessel joins nationwide coalition to keep young users safe as chatbot company Character.AI sells its assets.

Lucas Henkel

October 26, 2026

Several states, including Michigan, are investigating Character.AI following a wave of lawsuits alleging its chatbots fostered emotionally and sexually exploitative relationships with users under the age of 18. (Boris Hamer/Pexels)

On Oct. 16, Attorney General Dana Nessel announced that Michigan would file a notice alongside a coalition of other state attorneys general in the bankruptcy proceedings of Character Technologies, Inc., the company behind Character.AI, which has faced heightened scrutiny amid reports that its AI-powered chatbot “companions” have encouraged users to engage in self-harm.

Launched in 2021 by two former Google engineers, Character.AI’s chatbot platform allows users to interact with AI-powered “characters” designed to mimic human conversation and relationships. These characters include fictional and celebrity personas, children’s cartoon characters, and others that present themselves as psychologists, therapists, and doctors.

Several states, including Michigan, launched investigations into Character.AI following a wave of lawsuits alleging its chatbots fostered emotionally and sexually exploitative relationships with users under the age of 18 and contributed to multiple deaths by suicide—all while collecting sensitive personal data.

Character.AI said they’ve taken steps to restrict minors’ access to certain chatbot features, but Nessel and other attorneys general raised concerns that these measures are incomplete and could be changed by whoever purchases the company. They argued that any sale or transfer of the company’s business or assets should include additional privacy and safety protections.

“Voluntary safety measures are not enough if they can be reversed by a business’ next owner,” said Nessel in a press release, adding that Michigan and other states will keep an eye on Character.AI’s bankruptcy proceedings and “push for safeguards that will remain in place no matter who takes control of this company.”

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