Settings file corruption: markdown content embedded on exit

Bug Report

Environment:

• WSL2 / Linux
• Claude Code CLI

Issue:
Every time I exit a Claude Code session, the settings file gets corrupted with embedded markdown content from the project directory.

Error Message:
The : pattern must be at the end. Move : to the end for prefix matching, or use * for wildcard matching.

Root Cause:

• Markdown files from the project directory are being parsed and embedded into .claude/projects/.../settings.local.json
• Documentation and brainstorm file content ends up in the settings file
• Happens consistently on every exit, making settings file unreadable

Workaround Attempted:

• Moving all markdown files to subdirectories (failed)
• Manually cleaning settings.json (issue returns on next exit)

Impact:

• Settings file becomes invalid JSON
• User forced to choose between exit/continue prompts
• Blocks normal workflow

Reproduction:

1. Create project with markdown documentation files
2. Run Claude Code session
3. Exit normally
4. Check .claude/projects/.../settings.local.json - contains embedded markdown

Expected Behavior:
Settings file should remain valid JSON with configuration only. Markdown project files should never be embedded.