Alabama Has No U.S. Trustee: The Bankruptcy Court Still Appoints and Supervises the Chapter 7 Trustee

Every piece written about a chapter 7 trustee's duty to secure a vacant house quotes the same source: the Handbook for Chapter 7 Trustees, and its line that the trustee "must obtain control over the property, which may include changing the locks at the premises, hiring guards, etc." That is a sound quotation in forty-eight states. In Alabama it describes the views of a Justice Department program that does not operate there. Alabama and North Carolina are the only two states outside the United States Trustee Program, and in Alabama's three federal districts the bankruptcy court still appoints and supervises the panel itself. The duty is the same; the chain of command above it is not.

Two States Opted Out, and Never Opted Back In

28 U.S.C. § 581(a) divides the country into twenty-one regions, and Alabama appears in the twenty-first alongside Florida, Georgia, Puerto Rico and the Virgin Islands. Read that list alone and you would conclude Alabama is inside the system. The exclusion sits in the transition provisions of the Act that built it - Pub. L. 99-554, title III, § 302(d)(3), printed as a note to § 581.

Subparagraph (A) provides that the relevant amendments "shall not ... become effective in or with respect to a judicial district specified in subparagraph (E) until ... such district elects to be included in a bankruptcy region established in section 581(a) of title 28, United States Code." Subparagraph (E) lists exactly two items: "The judicial districts established for the State of Alabama" and "The judicial districts established for the State of North Carolina."

Subparagraph (B) sets the mechanism: an election "shall be made upon a majority vote of the chief judge of such district and each bankruptcy judge in such judicial district in favor of such election," with notice to the Attorney General and the circuit within ten days. The provision sets no deadline. Forty years on, no Alabama district has voted. As the Supreme Court put it in Siegel v. Fitzgerald, "Congress permitted the six judicial districts in North Carolina and Alabama to opt out of the Trustee Program."

Who Appoints the Trustee Instead

The answer is in subparagraph (I) of the same note. In any Alabama or North Carolina district that has not made the election, "any person who is appointed under regulations issued by the Judicial Conference of the United States to administer estates in cases under title 11 of the United States Code" may "(i) establish, maintain, and supervise a panel of private trustees that are eligible and available to serve as trustees in cases under title 11, United States Code, and (ii) supervise the administration of cases and trustees in cases under chapters 7, 11, 12, and 13 of title 11."

Set that beside 28 U.S.C. § 586(a), which tells each United States trustee to "establish, maintain, and supervise a panel of private trustees that are eligible and available to serve as trustees in cases under chapter 7 of title 11" and to "supervise the administration of cases and trustees." The wording is nearly identical. Congress wrote the same job description twice and gave it to two different branches of government.

The Supreme Court's description is the cleanest summary available: in those six districts "bankruptcy courts continue to appoint bankruptcy administrators under a system called the Administrator Program," and the two programs "handle the same core administrative functions, but have different funding sources." The Bankruptcy Code itself carries the duality in its own text - 11 U.S.C. § 704(b)(1)(A) speaks of "the United States trustee (or the bankruptcy administrator, if any)," a parenthetical Congress has bolted onto provision after provision.

The 1978 Reform That Alabama Skipped

The Handbook explains why the Trustee Program exists, and the explanation is worth reading with Alabama in mind. The Bankruptcy Reform Act of 1978 removed the bankruptcy judge from day-to-day administration of cases because "debtors, creditors, and third parties litigating against bankruptcy trustees were concerned that the court, which previously appointed and supervised the trustee, would not impartially adjudicate their rights as adversaries of that trustee." To address that, "judicial and administrative functions within the bankruptcy system were bifurcated," and the administrative ones moved into the Department of Justice.

Alabama kept the unbifurcated version. The court that would hear your dispute with a trustee sits above the office that appointed and supervises that trustee. That is not a scandal - it is the arrangement Congress expressly permitted, and the Administrator Program has run it for four decades. But it changes where a vendor with an unpaid invoice or a scope dispute takes the problem, and it means there is no Justice Department office standing outside the court to complain to.

The Duty Is Identical, Because It Is in the Code

None of this softens the trustee's obligation, because the obligation is statutory. 11 U.S.C. § 704(a)(1) requires the trustee to "collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest." Section 704(a)(2) requires the trustee to "be accountable for all property received." Neither is conditioned on which office supervises the case, and neither has an Alabama variant.

The same is true of the two provisions a preservation vendor cares about most. Section 506(c) is the route by which costs of preserving collateral are charged to the secured creditor. Section 554 is abandonment. Both are Code sections and both read the same in Mobile as in Dallas. What differs is the supervisory layer above the trustee who invokes them.

But the Handbook Is Not an Alabama Document

The Handbook for Chapter 7 Trustees, effective 1 October 2012, is explicit about what it is. It "is intended to establish or clarify the views of the United States Trustee Program (Program) on the duties owed by a chapter 7 trustee to the debtors, creditors, other parties in interest, and the United States Trustee," and it "is issued under the authority of the Program's enabling statutes." It also warns that it "does not present a full and complete statement of the law."

So the famous passage at 4.C.3.f - in cases where the property appears to have value for the estate, the trustee "must obtain control over the property, which may include changing the locks at the premises, hiring guards, etc." and "must immediately take all other steps which may be reasonably necessary to preserve the assets," with the statutory citation given as 11 U.S.C. § 704 - is the Program's reading of a Code duty. The Code duty binds an Alabama trustee. The Program's gloss on it is persuasive there, not supervisory. Quote § 704 first and the Handbook second, and do not send an Alabama trustee a Justice Department manual as though it governed them.

Insurance, and the Order of Operations

The Handbook's sequence is worth knowing wherever you work, because it predicts what a competent trustee will ask you for. On real property with value to the estate, the trustee must either determine that the debtor's insurance is in force or obtain insurance for the estate; if the debtor is insured, the trustee requests proof and ensures it continues for the estate's benefit.

If the debtor has no insurance, the property is encumbered and there are no estate funds, "the trustee must contact the secured creditor immediately, so that the secured creditor can obtain insurance or otherwise protect its own interest in the property." Two routes are then offered: an agreement with the secured creditor to fund the expense of insurance "and provide proper safeguarding under section 506(c)," or a court order allowing the trustee to insure or safeguard the property at the secured creditor's expense under the same section. Where property with value cannot be insured at all, the trustee must liquidate as quickly as possible in a reasonable manner.

Where the property is fully encumbered and of nominal value, the instruction is to abandon it immediately under sections 554 and 704 and tell the secured creditor straight away. And then the sentence that explains why trustees move quickly: "If a loss occurs as a result of the trustee's failure to insure or protect estate property, the trustee could be subject to liability including a surcharge." That personal exposure is the engine behind every urgent lock change order a trustee issues.

The environmental paragraph adds a step most vendors never see quoted. The trustee should take reasonable steps to abate or prevent contamination by or to estate property, and where the property has no value and may be hazardous should consider abandonment under section 554(a) - but before abandoning "must take all precautions possible in light of the available assets of the estate, consult with appropriate federal, state and local authorities, and document the actions taken." Language amended in October 2021 adds that the trustee may consider whether a sale is appropriate, "such as blighted property in a community undergoing revitalization."

The Money Comes from a Different Place

The two systems are funded differently, and that difference produced a Supreme Court case. Congress requires the Trustee Program to be funded in its entirety by user fees paid into the United States Trustee System Fund under 28 U.S.C. § 589a(b)(5), largely by chapter 11 debtors paying quarterly fees under § 1930(a). The Administrator Program, by contrast, "is funded by the Judiciary's general budget."

To keep the two in step, 28 U.S.C. § 1930(a)(7) provides that "in districts that are not part of a United States trustee region as defined in section 581 of this title, the Judicial Conference of the United States shall require the debtor in a case under chapter 11 of title 11 to pay fees equal to those imposed by paragraph (6)." That sentence read "may" until Pub. L. 116-325 changed it to "shall." Under a 2001 standing order the districts charged uniform fees from 2001 to 2017.

Then in 2017 Congress raised the fees on large chapter 11 cases to address a shortfall in the Trustee Program's fund - an increase that by its terms reached only Trustee Program districts. The Judicial Conference adopted it for the six Administrator Program districts effective 1 October 2018 and only for newly filed cases. The gap was litigated by the liquidating trustee of Circuit City, who paid $632,542 across three quarters of 2018 against $56,400 at the former rate.

The holding in Siegel v. Fitzgerald, decided 6 June 2022: "Congress' enactment of a significant fee increase that exempted debtors in two States violated the uniformity requirement of the Bankruptcy Clause." Unanimous, by Justice Sotomayor, reversing the Fourth Circuit and remanding for it to decide the remedy in the first instance. For anyone working Alabama files, the case is useful less for its holding than for its description: two programs, same core functions, different money, and a Constitution that notices.

What This Means If You Do the Work

• Alabama has three federal judicial districts - Northern, Middle and Southern - and none of them is inside a United States trustee region in practice; Siegel counts six such districts across Alabama and North Carolina together
• Cite 11 U.S.C. § 704(a)(1) and (a)(2) for the preservation duty, not the Handbook; in Alabama the Handbook is a persuasive gloss issued by a program that does not supervise your trustee
• There is no U.S. Trustee office to escalate to; the supervising office is the bankruptcy administrator for the district, appointed under Judicial Conference regulations
• The section 506(c) routes are unchanged - an agreement with the secured creditor to fund insurance and safeguarding, or a court order charging the secured creditor - and both work better agreed before the work than argued after it
• Trustee urgency is personal: the Handbook warns that a loss from failure to insure or protect estate property can leave the trustee "subject to liability including a surcharge"
• On a fully encumbered, nominal-value house expect abandonment under section 554, after which the preservation problem returns to the servicer
• Where contamination is in play, the trustee is told to consult federal, state and local authorities and to document what was done - build that documentation into your scope rather than bolting it on

For the same duty under the ordinary supervisory structure, see a chapter 7 trustee's duty to preserve estate property in Texas. For what actually varies between states — the homestead exemption, which decides whether the house is in the estate at all — see Ohio, Pennsylvania, Oklahoma, Louisiana and Arkansas. Alabama's other fiduciary regimes sit in state law and are covered separately - a personal representative's duty to preserve estate property, an Alabama conservator and the ward's house, and the heirs' property problem on a vacant Alabama house. On the municipal side, Alabama has no blighted-property receivership and repairs through the city instead, with registration handled under the 2026 act in Birmingham. Field capability is on our Alabama page, with the broader servicer view in the Alabama state guide.