IN THE UNITED STATES COURT OF APPEALS 1

FOR THE FIFTH CIRCUIT 2

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No. 95-20458 4

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In the Matter of: 6

JOSE MANUEL CABRERA and MARIA LOURDES CABRERA, 7

Debtors. 8

DANIEL E. O’CONNELL, 9

JOSE MANUEL CABRERA, 10

and 11

MARIA LOURDES CABRERA, 12

Appellants, 13

VERSUS 14

TROY & NICHOLS, INC., 15

Appellee. 16

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Appeal from the United States District Court 18

for the Southern District of Texas 19

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November 1, 1996 21

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

JERRY E. SMITH, Circuit Judge: 23

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

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

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

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

we affirm. 281 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 I. 29

The Cabreras filed a petition for voluntary bankruptcy. Among 30

their liabilities is a homestead mortgage 1 held by Troy & Nichols, 31

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

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

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

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

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

The Cabreras submitted a plan to the bankruptcy court, 37

proposing to continue making scheduled mortgage payments outs ide 38

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

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

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

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

plan. 43

Troy & Nichols objected to the plan on the gr ound that the 44

plan impermissibly modified its contractual rights under the note. 45

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

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

bankruptcy court, relying on In re Sauls

, 161 B.R. 794 (Bankr. S.D. 48

Tex. 1993), denied confirmation, and the district court affirmed. 493 II. 50

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

the arr earage when a debtor proposes to cure a default on a 52

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

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

note specifies to apply to the arrearage SS if a contract rate 55

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

value rate" SS a rate that will allow the mortgagee to recover the 57

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

Title 11 U.S.C. § 132 2(e) ordinarily would govern this 59

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

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

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

shall be determined in accordance with the underlying agreement and 63

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

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

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

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

1989. 68

After reviewing the record, we conclude that the bankruptcy 69

court correctly denied confirmation. On the facts presented 70

here SS and without opining on the correctness of the Sauls rationale 71

a s applied to other cases SS we believe the secured claim for t h e 72

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

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

c omply with the present value requirement of 11 U.S.C. 754

§ 1325(a)(5)(b)(ii) (1994). 76

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

decision of the bankruptcy court, is AFFIRMED. 78