[Bug] Project settings (.claude/settings.json) not loaded, only user settings applied

Bug Description

Bug Report: Project settings not loaded

URL: https://github.com/anthropics/claude-code/issues/new

Title: Project settings (.claude/settings.json) not loaded - only user settings applied

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Bug Description

Claude Code 2.0.67 detects project-level settings files but does not apply their permissions or hooks. Only user-level settings from ~/.claude/settings.json are loaded.

Environment

• Claude Code Version: 2.0.67
• OS: Linux 6.12.66-1-lts (Arch Linux)
• Terminal: PHPStorm integrated terminal + standalone terminal (both affected)

Steps to Reproduce

1. Create project settings files:

• .claude/settings.json (project-level, committed)
• .claude/settings.local.json (local overrides, gitignored)

1. Add permissions and hooks to both files (valid JSON, verified with jq)

1. Start Claude Code in the project directory

1. Run /permissions command

Expected Behavior

Permissions from all three files should be merged according to documented precedence:

1. Local project settings (.claude/settings.local.json) - highest
2. Shared project settings (.claude/settings.json)
3. User settings (~/.claude/settings.json) - lowest

Actual Behavior

Only user settings are applied. Debug log shows:

[DEBUG] Watching for changes in setting files /home/user/.claude/settings.json, /project/.claude/settings.json, /project/.claude/settings.local.json...
[DEBUG] Applying permission update: Adding 3 allow rule(s) to destination 'userSettings': ["Bash(ls:*)","Bash(cat:*)","Bash(find:*)"]
[DEBUG] Found 0 hook matchers in settings

Key observations:

• Claude Code watches all three settings files
• Only userSettings permissions are applied (3 rules from ~/.claude/settings.json)
• No projectSettings or localSettings permissions are applied
• Hooks are not loaded despite being defined in project settings files
• /permissions only shows the 3 rules from user settings

Files Verified

Both project settings files:

• Exist in correct location (.claude/ directory)
• Are valid JSON (verified with jq . filename)
• Are readable (correct file permissions)
• Contain permissions.allow arrays and hooks objects

Workaround

Moving all permissions to ~/.claude/settings.json works, but defeats the purpose of project-specific settings.

Impact

• Cannot use project-specific permissions (security concern - over-permissive global settings required)
• Cannot use project-specific hooks
• Team cannot share permissions via committed .claude/settings.json

Environment Info

• Platform: linux
• Terminal: pycharm
• Version: 2.0.67
• Feedback ID: 2c28d645-3b53-4dae-b9ac-fb6fc7bd4ae7

Errors

[{"error":"Error\n    at wO (/$bunfs/root/claude:58:1143)\n    at <anonymous> (/$bunfs/root/claude:59:10080)\n    at emit (node:events:92:22)\n    at endReadableNT (internal:streams/readable:862:50)\n    at processTicksAndRejections (native:7:39)\n    at request (/$bunfs/root/claude:61:2147)\n    at processTicksAndRejections (native:7:39)","timestamp":"2026-01-19T19:49:17.757Z"},{"error":"Error\n    at wO (/$bunfs/root/claude:58:1143)\n    at <anonymous> (/$bunfs/root/claude:59:10080)\n    at emit (node:events:92:22)\n    at endReadableNT (internal:streams/readable:862:50)\n    at processTicksAndRejections (native:7:39)\n    at request (/$bunfs/root/claude:61:2147)\n    at processTicksAndRejections (native:7:39)","timestamp":"2026-01-19T19:49:35.127Z"},{"error":"Error\n    at wO (/$bunfs/root/claude:58:1143)\n    at <anonymous> (/$bunfs/root/claude:59:10080)\n    at emit (node:events:92:22)\n    at endReadableNT (internal:streams/readable:862:50)\n    at processTicksAndRejections (native:7:39)\n    at request (/$bunfs/root/claude:61:2147)\n    at processTicksAndRejections (native:7:39)","timestamp":"2026-01-19T19:49:51.184Z"},{"error":"Error\n    at wO (/$bunfs/root/claude:58:1143)\n    at <anonymous> (/$bunfs/root/claude:59:10080)\n    at emit (node:events:92:22)\n    at endReadableNT (internal:streams/readable:862:50)\n    at processTicksAndRejections (native:7:39)\n    at request (/$bunfs/root/claude:61:2147)\n    at processTicksAndRejections (native:7:39)","timestamp":"2026-01-19T19:50:34.532Z"},{"error":"Error\n    at wO (/$bunfs/root/claude:58:1143)\n    at <anonymous> (/$bunfs/root/claude:59:10080)\n    at emit (node:events:92:22)\n    at endReadableNT (internal:streams/readable:862:50)\n    at processTicksAndRejections (native:7:39)\n    at request (/$bunfs/root/claude:61:2147)\n    at processTicksAndRejections (native:7:39)","timestamp":"2026-01-19T19:50:53.869Z"},{"error":"Error\n    at wO (/$bunfs/root/claude:58:1143)\n    at <anonymous> (/$bunfs/root/claude:59:10080)\n    at emit (node:events:92:22)\n    at endReadableNT (internal:streams/readable:862:50)\n    at processTicksAndRejections (native:7:39)\n   

Note: Error logs were truncated.