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.
4