MEMORANDUM AND ORDER
We review herein Judge Schmetterer’s amended memorandum opinion and order denying the debtor’s motion to receive the post-judgment rate of interest on the judgment of foreclosure. Robert L. Daniels, Jr. (“debtor”) urged approval of his Chapter 13 Plan (“Plan”), which provided for payment to Fleet Mortgage Corporation (“Fleet” or “creditor”) of the foreclosure judgment, with interest to accrue at the rate of 9 per cent — the Illinois statutory post-judgment rate of interest.
FACTS/PROCEDURAL HISTORY
On December 27, 1981, the debtor executed a note in favor of Mortgage Associates, Inc., secured by a mortgage on certain residential property that was and remains debtor’s only residence. Fleet Mortgage subsequently received the note via assignment. The outstanding debt was to be paid monthly, with interest accruing at 15-V2 per cent annually “until paid.” The mortgage was to be retired on January 1, 2012, long after the proposed Plan ends. Under the proposed plan the debtor maintains his current residence.
Debtor made the required mortgage payments until June 1986, when he defaulted. Pursuant to the Illinois Mortgage Foreclosure Act, Fleet brought a foreclosure action in this court. On February 5, 1987, this court entered a default order and a judgment of foreclosure and sale (“default order”), finding the total indebtedness to be $39,926.60 including principal, interest to that date, attorneys’ fees and costs. Because debtor asserts the home’s value to be $46,000, he claims an equity of about $6,000 in the property. Our judgment, like
On March 13,1987, more than five weeks after the default order but before the sale of the property, debtor filed for bankruptcy under Chapter 13. Pursuant to 11 U.S.C. § 362(a) further foreclosure proceedings, including the sale of the home, were stayed by that petition. Confirmation of debtor’s plan awaits a final decision respecting his proposal to pay Fleet’s judgment over the maximum five-year period permitted under 11 U.S.C. § 1322(c). In order to permit a sale of the residence at issue, Fleet urged modification of the stay. It has, however, agreed to await decision on the interest issue. The stay, therefore, has remained in effect by agreement of the parties.
DISCUSSION
Within foreclosure law terminology, Illinois can be described as a “lien,” not a “title” state. The entry of a foreclosure judgment — sometimes called the “merger of mortgage into foreclosure judgment”— does not alter the creditor’s possession of the mortgage lien nor pass title, only the foreclosure sale does that. Under both the new and old Illinois foreclosure laws “it cannot be said that a judgment of foreclosure ... terminates the pre-foreclosure relationship between mortgagor and mortgagee.” Compare In re Josephs,
We review that law to ascertain the creditor’s interest in the debtor’s residence. Since the default order does not terminate the mortgage, Fleet never received a judgment lien but rather maintains its prior lien. Pursuant to the Bankruptcy Code such “lien [s] created by agreement” are “security interest [s]” under 11 U.S.C. § 101(45). The default order therefore did not alter Fleet’s security interest in the debtor’s residence.
Those rights are specifically protected by the Bankruptcy Code. Under 11 U.S.C. § 1322(b) the Plan may
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims....
(emphasis added). The proposed judgment order, therefore, cannot alter any of Fleet’s claims secured by the mortgage at issue. Judge Schmetterer held that that order would modify Fleet’s rights under the mortgage by, inter alia, altering the timing and payment amounts, including adjusting the interest rate. We review here only whether the order’s use of the Illinois statutory interest rate is a modification within the meaning of § 1322(b)(2).
In order to ascertain whether the proposed judgment order modifies Fleet’s rights, we review the parameters thereof at the time of the Chapter 13 petition. That filing came after this court’s February 5, 1987 default order. The core dispute centers on the effect of that ruling.
We do not question that a default order in Illinois does not alter the creditor’s possession of the mortgage lien nor pass title. But that conclusion does not end the inquiry. The question remains whether the default order might still affect other aspects of the parties’ contractual relations unrelated to title, e.g., the right to interest. We first review the use of “judgment” within the meaning of the Illinois statute in relevant part. That provision states:
§ 2-1303. Interest on judgment. Judgments recovered in any court shall draw interest at the rate of 9% per an-num from the date of the judgment.... When judgment is entered upon any award, report or verdict, interest shall be computed at the above rate, from the time when made or rendered to the time of entering judgment upon the same, and included in the judgment. Interest shall be computed and charged only on the unsatisfied portion of the judgment as it exists from time to time. The judgment debtor may by tender of payment of judgment, costs and interest accrued to*683 the date of tender, stop the further accrual of interest on such judgment notwithstanding the prosecution of an appeal, or other steps to reverse, vacate or modify the judgment.
Ill.Rev.Stat. eh. 110, 112-1303.
While not altering the creditor/debt- or relationship respecting title, the default order was also not rendered irrelevant by the debtor’s subsequent Chapter 13 filing. Pursuant to Illinois law a default order (or foreclosure decree) merges the real estate mortgage and the mortgage indebtedness. See, e.g., Carter Oil Co. v. Durbin,
That judgment does, however, represent a watershed respecting the computation of interest. In Illinois this line of eases evolved quite early. In Aldrich v. Sharp, 3 Scammon 261,
where a judgment is obtained on a contract, the contract is at an end, béing merged in the judgment, and the judgment is controlled, not by the contract, but by the statute, which [then] gives interest only at the rate of six per cen-tum per annum. We see no reason why the rule should not be applicable to decrees in chancery for the foreclosure of mortgages.
3 Scammon at 262,
It is true that a judgment or decree may, for some purposes be considered as an extinction of the original cause of action; for instance, for the purpose of regulating the interest on money to which a party is entitled before final satisfac-tionn of the debt as was the case in3 Scam. 263 [Aldrich], to which authority the appellant has directed our attention, but it is equally true, that for many other purposes, as for the ascertaining of priority of liens, for instance, the principle of extinction or merger finds no application.
The Aldrich rule, if we can call it that, has been applied in this century as well. In reversing the Circuit Court’s computation of interest, the Fourth District held:
The decree provided that interest should be computed upon $32,262.50, the amount found due by the master’s report filed on March 14, 1936, at the legal rate of 5 per cent. This was error. Interest should have been computed upon the principal of $24,500 at 6 per cent, the rate which the obligation bore, to the date of decree January 28, 1937; Guignon v. Union Trust Co.,156 Ill. 135 [40 N.E. 556 (1895)]; 42 Corpus Juris, p. 144, sec. 1740; and after such date at the legal rate on the full amount found due, it then becoming in effect a judgment; Hoover Steel Ball Co. v. Schaefer Ball Bearing Co., 90 N.J.Eq. 515,107 Atl. 425 .
Carson v. Rebhan,
This was error, as the interest on the total amount found due should have been computed at the legal rate from date of decree after the manner of a judgment; Hoover Steel Ball Co. v. Schaefer Ball Bearing Co., 90 N.J.Eq. 515,107 Atl. 425 . The Schmisseur note secured by the mortgage drew interest at 6 per cent, and should have been so computed until the date of the decree, upon $12,000; Guignon v. Union Trust Co.,156 Ill. 135 [40 N.E. 556 ].
While it is true, as Judge Schmetterer's January 21, 1988 opinion points out, that none of these cases concern interest
In these cases we hold that under Chapter 13 of the Bankruptcy Code, a secured creditor who holds a security interest in the debtor’s principal residence is not entitled to receive interest on arrearages, unless the mortgage contract so provides, when the debtor seeks to cure default and reinstate the mortgage.
In Re Terry,
We do, however, raise a slightly different aspect of the interest rate issue sua sponte. We review whether the Illinois or federal statutory rate applies to the period following the default order. In' earlier times, the issue was moot as the federal post-judgment rate merely echoed that specified in “the law of the State in which such court is held.” 28 U.S.C. § 1961, amended by Pub.L. 97-164, § 302(a)(1), (2), effective October 1, 1982. Now, however, the federal rate tracks something quite different:
§ 1961. Interest
(a) interest shall be allowed on any money judgment in a civil case recovered in a district court.... Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United States Treasury Bills settled imediately prior to the date of the judgment. The Director of the Administrative Office of the United States Courts shall distribute notice of that rate and any changes in it to all Federal Judges.
96 Stat. 25, 55-56, codified at 28 U.S.C. § 1961(a). While the parties have not briefed the choice of law issue, we hold their implicit choice of the state interest rate to be incorrect.
This inquiry again reverts back to the foreclosure decree where we ruled pursuant to the Illinois Mortgage Foreclosure Act. Various authorities have split over
Here in the Seventh Circuit no uncertainty remains. In Travelers Insurance Company v. Transport Insurance Company,
Procedurally, therefore, we need to reexamine the proposed order. The federal rate governs the period following the default order, yet the proposed order utilizes the state rate. Consequently, that order “modifies” the rights of holders of claims secured only by a security interest in real property that is the debtor’s principal residence, in violation of 11 U.S.C. § 1322(b). As we explain above, the proposed order therefore cannot be crammed down under 11 U.S.C. § 1325(a)(5)(B)(ii). The case is therefore remanded to Judge Schmetterer for proceedings consistent with this opinion.
CONCLUSION
For the foregoing reasons, we remand to the bankruptcy court.
Notes
. Others, such as Debentureholders v. Continental Investment Corp.,
. While we recognize that § 1322(b) also permits the debtor to propose a cure and deaccelerate arrearages rather than to pay off the full foreclosure judgment, the code does not compel that choice.
. Sitting by designation from the United States Seventh Circuit Court of Appeals.
. While those proceedings continue, we would entertain' a reconsideration motion were the debtor capable of producing persuasive authority that the state, as opposed to the federal rate, should be employed in relatively unique circumstances such as these.