Thomas P. Gorman v. Ricardo Cantu, Jr.

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 17-1034

THOMAS P. GORMAN,

Trustee - Appellant,

v.

RICARDO CANTU, JR., a/k/a Rick Cantu,

Debtor - Appellee.

Appeal from the United States District Court for the Eastern District of Virginia, at
Alexandria. Claude M. Hilton, Senior District Judge. (1:16-cv-01134-CMH-MSN)

Argued: October 25, 2017 Decided: December 18, 2017

Before DIAZ, THACKER, and HARRIS, Circuit Judges.

Affirmed by unpublished opinion. Judge Harris wrote the opinion, in which Judge Diaz
joined. Judge Thacker wrote a separate opinion concurring in part, and dissenting in part.

ARGUED: Thomas Patrick Gorman, OFFICE OF THE CHAPTER 13 TRUSTEE,
Alexandria, Virginia, for Appellant. David R. Kuney, WHITEFORD, TAYLOR &
PRESTON, LLP, Washington, D.C., for Appellee. ON BRIEF: Janet E. Boyd, JANET
E. BOYD, PLC, Stafford, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PAMELA HARRIS, Circuit Judge:

In this appeal, a Chapter 13 bankruptcy trustee challenges a debtor’s plan to repay

his creditors, raising two objections: first, that the plan allows the debtor to contribute to

his retirement account in a bad faith attempt to shield “disposable income” from his

creditors; and second, that the debtor improperly overstated his court-ordered child

support and alimony payments, also excluded from the “disposable income” available to

creditors. The bankruptcy court rejected both objections, finding that the retirement

contributions were proposed in good faith and that the plan accurately stated the amount

of family support that the debtor agreed to pay. We agree with the district court that the

bankruptcy court did not clearly err in either of those findings, and accordingly, we

affirm.

I.

A.

On December 31, 2015, Ricardo Cantu, Jr. (the “Debtor”) filed a voluntary

petition for relief under Chapter 13 of the Bankruptcy Code, which governs debt

adjustment for individual wage-earners. Under Chapter 13, debtors submit a repayment

plan pledging all “projected disposable income” to their creditors during a multi-year

commitment period. 11 U.S.C. § 1325(b)(1)–(4). If the bankruptcy court approves the

plan and the debtor completes the payments, then the remaining debt is discharged and

the debtor receives a fresh start. See 11 U.S.C. §§ 1325, 1328.

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 The Debtor, seeking to discharge $148,346 in unsecured debt, submitted a plan

proposing to repay his creditors a total of $51,240 over five years. As permitted by 11

U.S.C. § 1322(f), the Debtor’s plan excluded from disposable income $338 in monthly

payments on two retirement loans, which the Debtor had previously taken out against his

Thrift Savings Plan (“TSP”), a government-sponsored retirement account.

Thomas P. Gorman, the court-appointed Chapter 13 bankruptcy trustee (the

“Trustee”), filed an objection to the plan. The Trustee contended that one of the Debtor’s

two retirement loans would be paid off shortly after the petition was filed, dropping the

Debtor’s monthly loan payments from $338 to $70 and resulting in $268 of newly

available income. Because bankruptcy courts must use a “forward-looking approach”

that “account[s] for changes in the debtor’s income or expenses that are known or

virtually certain at the time of confirmation,” Hamilton v. Lanning, 560 U.S. 505, 517,

524 (2010), the Trustee argued that the $268 was “projected disposable income” that

should be committed to creditors.

In response, the Debtor submitted an amended Chapter 13 repayment plan

clarifying that once his retirement loan was repaid, he planned to contribute the extra

$268 to his TSP each month. The Debtor explained that he had contributed to his TSP

regularly since the year 2000, but had been suspended from making contributions as a

consequence of taking out the retirement loans. See J.A. 224 (notice of six-month

suspension). Under the amended proposal, the Debtor thus would resume TSP

contributions after the suspension was lifted. The Trustee objected to the amended plan,

arguing that proposed retirement contributions would deprive the Debtor’s creditors of

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“projected disposable income” to which they were entitled, and that the Debtor’s decision

to contribute the $268 per month to his retirement account was made in bad faith.

The Debtor separately excluded from his “disposable income” $1,625 per month

in child and spousal support pursuant to 11 U.S.C. § 1325(b)(2), which permits debtors to

retain income for certain “reasonably necessary” expenses, including domestic support

payments. The Trustee also objected to this exclusion, arguing that a discrepancy

between the $1,625 the Debtor listed on his bankruptcy forms and the $1,500 monthly

payment recorded in the Debtor’s state-court divorce decree demonstrates that the Debtor

overstated his monthly family support obligation. Compare J.A. 203–05, with J.A. 60,

101.

B.

After holding a hearing to consider the Trustee’s arguments and the Debtor’s

testimony, the bankruptcy court rejected the Trustee’s objections and confirmed the

Debtor’s amended repayment plan.

With respect to the Debtor’s proposed retirement fund contributions, the

bankruptcy court noted a division in authority as to whether and under what

circumstances such contributions may be excluded from “disposable income” under 11

U.S.C. § 1325(b) and from the “property” of a Chapter 13 estate, as defined by 11 U.S.C.

§ 541(b)(7) and § 1306(a). In re Cantu, 553 B.R. 565, 572 (Bankr. E.D. Va. 2016). The

majority approach permits debtors to exclude post-petition retirement contributions like

the ones proposed by the Debtor here, subject to a showing of good faith. See, e.g., In re

Vanlandingham, 516 B.R. 628, 633 n.21 (Bankr. D. Kan. 2014) (collecting cases); Baxter

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v. Johnson (In re Johnson), 346 B.R. 256, 263 (Bankr. S.D. Ga. 2006). A second,

“middle” approach holds that debtors may make and exclude post-petition retirement

contributions, but only in the same amount they were making at the time their petitions

were filed. See, e.g., Burden v. Seafort (In re Seafort), 437 B.R. 204, 210 (B.A.P. 6th

Cir. 2010), aff’d on other grounds, 669 F.3d 662 (6th Cir. 2012). And a final approach

precludes debtors from excluding any voluntary post-petition retirement contributions

from the “disposable income” committed to creditors. See, e.g., Seafort v. Burden (In re

Seafort), 669 F.3d 662, 674 n.7 (6th Cir. 2012); In re Prigge, 441 B.R. 667, 677 n.5

(Bankr. D. Mont. 2010). After observing that the Fourth Circuit has not resolved this

issue, the bankruptcy court adopted the majority rule, holding that debtors are permitted

to exclude post-petition retirement contributions from disposable income in any legal

amount, so long as the contributions are made in good faith. In re Cantu, 553 B.R. at

577.

The bankruptcy court next considered whether the Debtor met this good-faith

requirement. The court recognized that the Debtor previously had contributed to his

retirement plan, and that he was not making similar contributions when he filed for

bankruptcy because he was “locked out . . . on account of the hardship loans that he had

taken out pre-petition.” Id. The court also observed that the Debtor’s proposed

contribution of $268 per month was “well within” the maximum annual contribution, and

that the Debtor “has no other pension benefits available to him.” Id. Based on these

considerations, the court concluded that “the Debtor is proceeding in good faith” and

overruled the Trustee’s objection. Id.

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 Finally, the court upheld the Debtor’s exclusion of $1,625 in family support

payments. The Debtor testified that he and his former spouse entered a written

agreement stating that the Debtor would pay $750 in child and spousal support “every

two weeks.” J.A. 169. Because the Debtor is paid 26 times per year, that comes to

$19,500 per year, or $1,625 per month. The Debtor explained that the Stafford County

Circuit Court formalized the terms of that agreement in a divorce decree that mistakenly

stated the obligation as $1,500 per month – that is, $750 twice a month, rather than every

two weeks. Id. The bankruptcy court found the Debtor’s testimony credible and ruled

that the divorce decree did not “accurately reflect the intention of the parties at the time it

was entered into.” J.A. 179.

Having overruled both of the Trustee’s objections, the bankruptcy court confirmed

the Debtor’s Chapter 13 plan. The district court affirmed, finding the decision of the

bankruptcy court “neither clearly erroneous nor contrary to law.” J.A. 267.

This timely appeal followed.

II.

This court reviews the judgment of a district court sitting in review of a

bankruptcy court de novo. Jacksonville Airport, Inc. v. Michkeldel, Inc., 434 F.3d 729,

731 (4th Cir. 2006). We review the bankruptcy court’s conclusions of law de novo and

its findings of fact only for clear error. Id.

In this case, the Trustee’s challenge is limited to two of the bankruptcy court’s

factual findings: that the Debtor’s retirement-plan contributions were proposed in good

6
faith; and that the Debtor properly excluded $1,625 rather than $1,500 in family support

payments. Because neither finding is clearly erroneous, we affirm.

A.

As the bankruptcy court explained, courts have come to “three divergent”

conclusions as to whether debtors may exclude voluntary retirement contributions from

disposable income, turning largely on their differing interpretations of 11 U.S.C.

§ 541(b)(7), which defines the “property” of an estate in bankruptcy. In re Cantu, 553

B.R. at 572. This appeal, however, does not require that we resolve that statutory issue.

As became clear at oral argument, the Trustee does not seek reversal on the ground that

the majority approach adopted by the bankruptcy court is incorrect, or urge us to adopt

some other identified standard. Instead, the Trustee argues – and the Debtor does not

dispute – that a showing of good faith is a minimum requirement for exclusion of post-

petition retirement contributions, and – now without the concurrence of the Debtor – that

the bankruptcy court erred in its good-faith determination. See Appellant’s Reply Br. at

1–4. So it is to that factual finding that we turn.

The Trustee argues that the confluence of several circumstances compels a finding

of bad faith with respect to the proposed retirement-fund contributions. The Debtor, the

Trustee urges, is only 38 years of age, has available other retirement vehicles and earns

an above median income, and proposes to repay his creditors only a small percentage of

his total debt. Id. The Trustee also emphasizes that the Debtor was not making any

retirement contributions at the time he filed his Chapter 13 petition, and decided to make

contributions only after the Trustee objected to his original plan and identified an extra

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$268 in projected monthly income. Id. at 1–2. Based on the foregoing, the Trustee

argues, the bankruptcy court clearly erred in finding good faith.

In the bankruptcy context, “a court’s finding with respect to the good faith

requirement . . . is reviewed for clear error.” Behrmann v. Nat’l Heritage Found., Inc.,

663 F.3d 704, 709 (4th Cir. 2011); accord Brown v. Gore (In re Brown), 742 F.3d 1309,

1315 (11th Cir. 2014) (“A bankruptcy court’s determination whether a chapter 13 plan

has been proposed in good faith is a finding of fact reviewable under the clearly

erroneous standard.”) (internal quotation marks omitted). Under this standard, “we will

not reverse a bankruptcy court’s factual finding that is supported by the evidence unless

that finding is clearly wrong.” Gold v. First Tenn. Bank Nat’l Ass’n (In re Taneja), 743

F.3d 423, 429 (4th Cir. 2014).

The bankruptcy court’s finding of good faith in this case is not clearly wrong. The

Debtor testified that he had contributed to his retirement plan monthly since the year

2000, stopping only because he was temporarily suspended from doing so after taking out

retirement loans. That the Debtor sought to resume making contributions does not

demonstrate bad faith. “[W]here . . . there is a history of similar prepetition

contributions, temporarily interrupted on account of a circumstance beyond a debtor’s

control (e.g., a limited period in which debtor could not contribute on account of a

hardship withdrawal) . . . any good faith obstacle [is] overcome.” In re Drapeau, 485

B.R. 29, 38–39 (Bankr. D. Mass. 2013). Moreover, as the bankruptcy court noted, the

Debtor’s proposed annual contribution of approximately $3,200 is well below the

maximum allowable contribution of $18,000, and the Debtor has no other retirement

8
benefits. J.A. 135–36. The bankruptcy court’s judgment that the Debtor did not use

post-petition retirement contributions to opportunistically evade repaying creditors, and

instead acted in good faith, is adequately supported by the record and not clearly

erroneous.

B.

The bankruptcy court likewise committed no clear error in finding that the Debtor

and his former spouse agreed to make child and spousal support payments totaling $1,625

per month. 1 The Trustee argues that the bankruptcy court committed clear error because

the Debtor’s explanation for the amount listed in the petition – i.e., that “[the Debtor] and

his ex-spouse had really intended for the monthly support to be $1,625” – is “completely

unsupported by any corroborating evidence or testimony.” Appellant’s Reply Br. at 4.

The bankruptcy court disagreed, crediting the Debtor’s account and holding that “the

decree of divorce . . . doesn’t accurately reflect the intention of the parties at the time it

was entered into.” J.A. 179.

In the context of a marital settlement agreement, this court “review[s] the

bankruptcy court’s finding on the parties’ mutual intent under the clearly erroneous

standard.” Robb-Fulton v. Robb (In re Robb), 23 F.3d 895, 898 (4th Cir. 1994). And

because the bankruptcy court’s ruling was based in part on “accept[ance] [of] the debtor’s

1
In addition to disputing the bankruptcy court’s finding on this question, the
Trustee contends that the court “lacked authority” to undertake the inquiry at all, arguing,
inter alia, that the dispute is not a “core proceeding” arising from the Debtor’s
bankruptcy case and that the court’s holding violates the Constitution’s Full Faith and
Credit Clause. See Appellant’s Br. at 21–24. We find those arguments to be without
merit.

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testimony,” J.A. 180, it merits substantial deference. See Farouki v. Emirates Bank Int’l,

14 F.3d 244, 249–50 (4th Cir. 1994) (“[D]ue regard shall be given to the opportunity of

the bankruptcy court to judge the credibility of witnesses.”).

The Debtor testified that he and his spouse entered a Marital Settlement

Agreement memorializing the parties’ mutual intention that the Debtor would pay $750

in family support every two weeks, for a total of $1,625 per month. The Debtor further

testified that the Stafford County Circuit Court, in a divorce decree incorporating and

ratifying the Agreement, inaccurately recorded the obligation as $1,500 per month –

equivalent to $750 paid twice a month, rather than biweekly. The Debtor corroborated

his testimony with a previous Separation Agreement, entered into prior to the divorce

decree, stating that the Debtor agrees to pay $750 “on the Saturday of each and every

second week,” or $1,625 per month. J.A. 216–17. Because the bankruptcy court’s

finding is adequately supported by this evidence, it is not clearly erroneous. 2

2
The Trustee notes that the divorce decree purports to incorporate a settlement
agreement dated July 24, 2015, while the Separation Agreement in the record is dated
June 5, 2015. Appellant’s Br. at 10 n.1. However, the Trustee does not argue – and has
never argued – that there is a material discrepancy between the two agreements, or that
the parties changed their understanding as to the amount of the monthly obligation
between June and July of 2015. On the contrary, the position of the Trustee is that only
after entry of the divorce decree in December of 2015, and in anticipation of the Debtor’s
bankruptcy filing, did the parties verbally agree to increase support payments from
$1,500 to $1,625 per month. Id. at 21–22. It is to that claim that the June 5th Separation
Agreement, submitted into the record by the Debtor, responds, showing that contrary to
the Trustee’s account, the parties’ intention that the Debtor pay $1,625 per month
predates the divorce decree.

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 III.

For the foregoing reasons we agree with the district court that the bankruptcy

court’s factual findings are not clearly erroneous. Accordingly, we affirm.

AFFIRMED

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THACKER, Circuit Judge, concurring in part and dissenting in part:

I agree with the majority that the bankruptcy court did not clearly err in finding

that Ricardo Cantu, Jr. (the “Debtor”) acted in good faith throughout his bankruptcy

proceedings. However, I disagree with two other aspects of the opinion. First, I believe

Thomas Gorman (the “Trustee”) sufficiently raised the legal statutory interpretation issue

of whether debtors can exclude post-petition retirement contributions from disposable

income. And, in my view, and we should address that issue. Second, I believe the

bankruptcy court clearly erred in finding a “scrivener’s error” and interpreting the divorce

decree executed by Debtor and his wife (the “Divorce Decree”) as requiring $1,625 in

monthly support payments, when on its face the Divorce Decree unambiguously requires

$1,500. As explained below, I would vacate the portion of the district court’s decision

affirming that finding, and remand for further proceedings.

I.

I disagree with the majority’s statement that the Trustee’s challenge is limited to

two factual good faith arguments, and that we need not “resolve th[e] statutory issue.”

Ante at 7. In my view, the bankruptcy court thoroughly analyzed the

Johnson/Seafort/Prigge statutory interpretation issue, and the Trustee properly raised it

on appeal. Therefore, we should review the issue de novo.

The Trustee clearly set forth in the Argument section of its opening brief the issues

of whether additional income “known to become available upon repayment of a

retirement loan” is considered “projected disposable income” under 11 U.S.C.

§ 1325(a)(1)(B), and whether 11 U.S.C. § 541(b)(7) “entitles a debtor to divert” income

12
that becomes available after a retirement loan is repaid or whether it should be used to

repay unsecured creditors. Appellant’s Br. 25–47. The Trustee presented a thorough

argument that the bankruptcy court incorrectly adopted the In re Johnson view, which

allows debtors to exclude post-petition retirement contributions from disposable income.

See Appellant’s Br. 34–47; Ante at 4–5; see also Fed. R. App. P. 28(a)(8) (In the

argument section of the opening brief, the appellant must provide its “contentions and the

reasons for them, with citations to the authorities and parts of the record on which the

appellant relies.”).

The majority cites to oral argument and the Trustee’s reply brief to conclude that

the Trustee “does not seek reversal on the ground that the majority approach adopted by

the bankruptcy court is incorrect, or urge us to adopt some other identified standard.”

Ante at 7. Rather, the majority concludes, “the Trustee argues . . . that a showing of good

faith is a minimum requirement for exclusion of post-petition retirement contributions,

and . . . the bankruptcy court erred in its good faith interpretation.” Id. (citing

Appellant’s Reply Br. 1–4). To the contrary, at oral argument, after the court peppered

counsel with questions about the confines of his argument, the Trustee took pains on

rebuttal to refute the notion set forth by the majority. See Oral Arg. at 39:10–39:21,

Gorman v. Cantu, No. 17-1034 (4th Cir. Oct. 25, 2017),

http://www.ca4.uscourts.gov/oral-argument/listen-to-oral-arguments (“I want to clarify

. . . . I don’t see this as exclus[ively] . . . a good faith analysis. That’s part of it.”).

Moreover, the reply brief, while focusing on good faith, comes far from conceding or

waiving the statutory argument. Indeed, the reply brief states, “The actual issue before

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this Court with regards to the retirement account is whether Congress intended to allow

debtors in bankruptcy the opportunity to enhance . . . existing retirement savings at the

direct expense of those creditors whose claims are not being paid in full and will be

discharged at the end of the case.” Appellant’s Reply Br. 1 (emphasis supplied).

Therefore, not only was the issue squarely presented, but it is also an important

issue that has only been addressed by one other circuit half a decade ago. See Seafort v.

Burden (In re Seafort), 669 F.3d 662 (6th Cir. 2012). I regret that we will miss a chance

to weigh in on an important statutory interpretation issue, which likely affects thousands

of retirees and current and potential debtors in the Fourth Circuit. See Appellee’s Br. 41;

see also Tara Twomey & Todd F. Maynes, Protecting Nest Eggs and Other Retirement

Benefits in Bankruptcy, 90 Am. Bankr. L.J. 235, 241 (2016).

II.

Next, I would vacate the portion of the district court’s judgment adopting the

bankruptcy court’s factual finding that Debtor’s monthly support payments were actually

$1,625. See ante at 9–10. Chapter 13 of the bankruptcy code allows for a deduction

from disposable income for “[c]ourt-ordered payments,” which is defined as “[t]he total

monthly amount [paid] as required by the order of a court or administrative agency, such

as spousal or child support payments.” Line 19, Official Form 122C-2, Calculation of

Your Disposable Income, http://www.uscourts.gov/sites/default/files/form_b122c-2.pdf

(April 2016) (saved as PDF opinion attachment) (emphasis supplied); see 11 U.S.C. §

1325(b)(2).

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 In support of the Debtor’s claimed $1,625 deduction, he submitted a separation

agreement (“Separation Agreement”) dated June 5, 2015, wherein he and his wife agreed

that he would contribute $550 for alimony and $200 for child support from each biweekly

paycheck. Because he received 26 paychecks per year, he claims the amount should have

resulted in $1,625 per month ($750 x 26 / 12 = $1,625). The Divorce Decree, however,

reflected a $1,500 monthly payment. Crucially, the Divorce Decree is the only relevant

court order in this record, it was executed after the Separation Agreement, and it did not

incorporate the Separation Agreement. Rather, the Divorce Decree incorporated a

separate “Marital Settlement Agreement” executed on July 24, 2015, which is not in the

appendix here, nor was it presented to the bankruptcy or district courts. J.A. 203.

The majority posits that it is a bankruptcy court’s obligation to interpret

contractual intent, and I agree that contract interpretation is part of the bankruptcy court’s

“core proceeding” jurisdiction. See 28 U.S.C. § 157(b)(2)(L) (“Bankruptcy judges may

hear and determine . . . all [Title 11] core proceedings,” which include “confirmations of

plans”); Tilley v. Jessee, 789 F.2d 1074, 1077 (4th Cir. 1986) (conducting an

“examination of a written agreement as persuasive evidence of intent” as to whether

debts were in the “nature of” alimony, maintenance, or support in Chapter 11

proceeding); In re Lowenschuss, 170 F.3d 923, 930 (9th Cir. 1999) (interpreting divorce

decree to determine “divorce court’s intent”).

I am bewildered as to how the bankruptcy court, without the benefit of the July 24,

2015 agreement, could have found a “scrivener’s error.” J.A. 179. When bankruptcy

courts interpret contracts, they are charged with applying the appropriate state law. See

15
In re Merritt Dredging Co., Inc., 839 F.2d 203, 205 (4th Cir. 1988) (“The determination

of property rights in the assets of a bankrupt’s estate is generally a matter of state law.”).

Under Virginia law, “Scrivener’s errors are those which are demonstrably contradicted by

all other documents.” Westgate at Williamsburg Condo. Ass’n v. Philip Richardson Co.,

621 S.E.2d 114, 119 (Va. 2005) (internal quotation marks omitted). The only court order

before the bankruptcy court was the Divorce Decree, which unambiguously stated that

Debtor’s support payment was $1,500 per month. Crucially, the June 5 document, upon

which the bankruptcy court relied to support the purported “scrivener’s error,” was an

earlier contract not incorporated into the Divorce Decree, and the July 24 document is

nowhere to be found. How, then, can the bankruptcy court have considered “all other

documents”? And how could it have determined that a document not in the record

“demonstrably contradict[s]” the only court order before it?

Instead, the bankruptcy court relied on the oral testimony of the Debtor himself

and explained, “[I]t is highly unlikely . . . that the payee spouse would go to court to

complain that she was receiving more than is reflected in the divorce decree, and it is

equally unlikely that the payor spouse would be held in contempt for paying more than

what the divorce decree requires.” Id. at 179–80. But this type of soothsaying has no

support in the face of the plain language of the contract. See Bentley Funding Grp.,

L.L.C. v. SK & R Grp., L.L.C., 609 S.E.2d 49, 56 (Va. 2005) (“It is the function of the

court to construe the contract made by the parties, not to alter the contract they have

made so as to conform it to the court’s notion of the contract they should have made in

16
view of the subject matter and the surrounding facts and circumstances.” (alteration and

internal quotation marks omitted)).

Moreover, under Virginia law, “[j]udgments and decrees are contracts of the

highest order and especially is this so when entered by consent of the parties.” Higgins v.

McFarland, 86 S.E.2d 168, 172 (Va. 1955). The Divorce Decree, which states that

Debtor would pay “$1,110 per month” in child support and “$400 per month” for spousal

maintenance, was signed by both Debtor and his ex-wife. J.A. 203, 205, 207.

For these reasons, I would vacate the portion of the bankruptcy’s decision

regarding the support payments and remand for further proceedings. I cannot join the

majority’s affirmance of the finding that the Divorce Decree contains a scrivener’s error

when that finding was based on speculation and an unincorporated document that is not a

court order.

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