1 IN THE UNITED STATES COURT OF APPEALS

2 FOR THE FIFTH CIRCUIT

3 _______________

4 No. 95-20458

5 _______________

6 In the Matter of:

7 JOSE MANUEL CABRERA and MARIA LOURDES CABRERA,

8 Debtors.

9 DANIEL E. O’CONNELL,

10 JOSE MANUEL CABRERA,

11 and

12 MARIA LOURDES CABRERA,

13 Appellants,

14 VERSUS

15 TROY & NICHOLS, INC.,

16 Appellee.

17 _________________________

18 Appeal from the United States District Court

19 for the Southern District of Texas

20 _________________________

21 November 1, 1996

22 Before KING, SMITH, and WIENER, Circuit Judges.

23 JERRY E. SMITH, Circuit Judge:

24 Jose and Maria Cabrera, debtors in this chapter 13 bankruptcy

25 proceeding, and Daniel O'Connell, the trustee (collectively, "the

26 Cabreras"), appeal the denial of confirmation of their chapter 13

27 bankruptcy plan. Agreeing with the bankruptcy and district courts,

28 we affirm.
 

1 We use the term "homestead mortgage" to refer to a debt "secured only by

a security interest in real property that is the debtor's principal residence."

11 U.S.C. § 1322(b)(2) (1994); see also Nobelman v. American Sav. Bank, 508 U.S.

324, 327 (1993) (using "homestead mortgage" in same manner).

2

29 I.

30 The Cabreras filed a petition for voluntary bankruptcy. Among

their liabilities is a homestead mortgage1 31 held by Troy & Nichols,

32 Inc. (“Troy & Nichols”). At the time the Cabreras filed for

33 bankruptcy, they had defaulted on their mortgage payments and were

34 in arrears for $5,770.08. The note underlying the mortgage

35 provides that "[a]ll past due installments of principal and

36 interest shall bear interest from maturity at [10.5% per annum]."

37 The Cabreras submitted a plan to the bankruptcy court,

38 proposing to continue making scheduled mortgage payments outside

39 the plan. They would cure their default, however, by paying the

40 arrearage over a 60-month period under the plan. The Cabreras

41 proposed that interest would accrue on the arrearage at 8% per

42 annum, the same rate they proposed for other payments under the

43 plan.

44 Troy & Nichols objected to the plan on the ground that the

45 plan impermissibly modified its contractual rights under the note.

46 It contended that under the terms of the note, it was entitled to

47 interest on the arrearage at the rate of 10.5% rather than 8%. The

48 bankruptcy court, relying on In re Sauls, 161 B.R. 794 (Bankr. S.D.

49 Tex. 1993), denied confirmation, and the district court affirmed.
3

50 II.

51 We must decide the appropriate rate of interest to apply to

52 the arrearage when a debtor proposes to cure a default on a

53 homestead mortgage under a chapter 13 plan. Troy & Nichols

54 maintains that we should apply the "contract rate"SSthe rate the

55 note specifies to apply to the arrearageSSif a contract rate

56 exists. The Cabreras argue that we should always apply a "present

57 value rate"SSa rate that will allow the mortgagee to recover the

58 present value of the arrearage at the time of confirmation.

59 Title 11 U.S.C. § 1322(e) ordinarily would govern this

60 dispute: “Notwithstanding subsection (b)(2) of this section and

61 sections 506(b) and 1325(a)(5) of this title, if it is proposed in

62 a plan to cure a default, the amount necessary to cure the default,

63 shall be determined in accordance with the underlying agreement and

64 applicable nonbankruptcy law.” That provision, however, applies

65 only to agreements entered into on or after October 22, 1994.

66 Bankruptcy Act of 1994, Pub. L. No. 103-394, § 702(b)(2)(D), 108

67 Stat. 4106, 4151 (1994). The agreement here was entered into in

68 1989.

69 After reviewing the record, we conclude that the bankruptcy

70 court correctly denied confirmation. On the facts presented

71 hereSSand without opining on the correctness of the Sauls rationale

72 as applied to other casesSSwe believe the secured claim for the

73 arrearage should bear interest at the rate provided for in the note

74 rather than at the lower rate proposed by the Cabreras, in order to

75 comply with the present value requirement of 11 U.S.C.
4

76 § 1325(a)(5)(b)(ii) (1994).

77 Accordingly, the judgment of the district court, affirming the

78 decision of the bankruptcy court, is AFFIRMED.