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IN THE UNITED STATES COURT OF APPEALS
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FOR THE FIFTH CIRCUIT
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_______________
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No. 95-20458
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_______________
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In the Matter of:
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JOSE MANUEL CABRERA and MARIA LOURDES CABRERA,
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Debtors.
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DANIEL E. O'CONNELL,
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JOSE MANUEL CABRERA,
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and
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MARIA LOURDES CABRERA,
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Appellants,
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VERSUS
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TROY & NICHOLS, INC.,
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Appellee.
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_________________________
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Appeal from the United States District Court
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for the Southern District of Texas
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_________________________
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November 1, 1996
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Before KING, SMITH, and WIENER, Circuit Judges.
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JERRY E. SMITH, Circuit Judge:
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Jose and Maria Cabrera, debtors in this chapter 13 bankruptcy
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proceeding, and Daniel O'Connell, the trustee (collectively, "the
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Cabreras"), appeal the denial of confirmation of their chapter 13
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bankruptcy plan. Agreeing with the bankruptcy and district courts,
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we affirm.

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I.
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The Cabreras filed a petition for voluntary bankruptcy. Among
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their liabilities is a homestead mortgage1 held by Troy & Nichols,
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Inc. ("Troy & Nichols"). At the time the Cabreras filed for
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bankruptcy, they had defaulted on their mortgage payments and were
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in arrears for $5,770.08. The note underlying the mortgage
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provides that "[a]ll past due installments of principal and
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interest shall bear interest from maturity at [10.5% per annum]."
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The Cabreras submitted a plan to the bankruptcy court,
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proposing to continue making scheduled mortgage payments outside
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the plan. They would cure their default, however, by paying the
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arrearage over a 60-month period under the plan. The Cabreras
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proposed that interest would accrue on the arrearage at 8% per
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annum, the same rate they proposed for other payments under the
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plan.
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Troy & Nichols objected to the plan on the ground that the
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plan impermissibly modified its contractual rights under the note.
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It contended that under the terms of the note, it was entitled to
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interest on the arrearage at the rate of 10.5% rather than 8%. The
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bankruptcy court, relying on In re Sauls, 161 B.R. 794 (Bankr. S.D.
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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

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II.
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We must decide the appropriate rate of interest to apply to
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the arrearage when a debtor proposes to cure a default on a
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homestead mortgage under a chapter 13 plan. Troy & Nichols
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maintains that we should apply the "contract rate"SSthe rate the
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note specifies to apply to the arrearageSSif a contract rate
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exists. The Cabreras argue that we should always apply a "present
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value rate"SSa rate that will allow the mortgagee to recover the
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present value of the arrearage at the time of confirmation.
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Title 11 U.S.C. � 1322(e) ordinarily would govern this
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dispute: "Notwithstanding subsection (b)(2) of this section and
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sections 506(b) and 1325(a)(5) of this title, if it is proposed in
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a plan to cure a default, the amount necessary to cure the default,
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shall be determined in accordance with the underlying agreement and
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applicable nonbankruptcy law." That provision, however, applies
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only to agreements entered into on or after October 22, 1994.
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Bankruptcy Act of 1994, Pub. L. No. 103-394, � 702(b)(2)(D), 108
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Stat. 4106, 4151 (1994). The agreement here was entered into in
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1989.
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After reviewing the record, we conclude that the bankruptcy
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court correctly denied confirmation. On the facts presented
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hereSSand without opining on the correctness of the Sauls rationale
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as applied to other casesSSwe believe the secured claim for the
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arrearage should bear interest at the rate provided for in the note
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rather than at the lower rate proposed by the Cabreras, in order to
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comply with the present value requirement of 11 U.S.C.
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� 1325(a)(5)(b)(ii) (1994).
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Accordingly, the judgment of the district court, affirming the
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decision of the bankruptcy court, is AFFIRMED.
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