[Bug] Claude Code fails to detect project context on initialization

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report (please file separate reports for different bugs)
• [x] I am using the latest version of Claude Code

What's Wrong?

When launching Claude Code in a project directory that contains a valid .claude/ configuration folder, the tool occasionally fails to recognize the project context. Claude behaves as if running in an empty working directory — ignoring CLAUDE.md, not loading MCP configs, and not applying project-level permissions.

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What Should Happen?

Claude Code should detect and load the .claude/ directory configuration on every startup, regardless of how the terminal session was initiated.

Error Messages/Logs

Steps to Reproduce

1. Initialize a project with claude init in a directory with existing .claude/settings.json
2. Close and reopen the terminal
3. Launch claude in the same directory
4. Observe that Claude does not acknowledge the existing project configuration

Claude Model

None

Is this a regression?

Yes, this worked in a previous version

Last Working Version

_No response_

Claude Code Version

1.0.123 (Claude Code)

Platform

Anthropic API

Operating System

Windows

Terminal/Shell

PowerShell

Additional Information

_No response_