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.
29                                              I.

30         The Cabreras filed a petition for voluntary bankruptcy. Among

31   their liabilities is a homestead mortgage1 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.




          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
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.


                                           3
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.




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