                         PUBLISHED

UNITED STATES COURT OF APPEALS
               FOR THE FOURTH CIRCUIT


LYNN LEWIS TAVENNER,                  
                Plaintiff-Appellee,
                v.
KENNETH R. SMOOT,
             Defendant-Appellant,
               and                            No. 00-1912

KATINA SMOOT, a/k/a Katina
Lombardo; CORY R. SMOOT; GINA
SMOOT; HOME CHECK SERVICES;
GLASS APPLE, INCORPORATED,
                       Defendants.
                                      
          Appeal from the United States District Court
        for the Eastern District of Virginia, at Richmond.
           Richard L. Williams, Senior District Judge.
                   (CA-99-738-3, AP-99-3006)

                      Argued: June 4, 2001

                     Decided: July 16, 2001

        Before WILKINS and MOTZ, Circuit Judges, and
      Irene M. KEELEY, Chief United States District Judge
            for the Northern District of West Virginia,
                      sitting by designation.



Affirmed by published opinion. Judge Motz wrote the opinion, in
which Judge Wilkins and Chief Judge Keeley joined.
2                        TAVENNER v. SMOOT
                            COUNSEL

ARGUED: Brett Alexander Zwerdling, ZWERDLING & OPPLE-
MAN, Richmond, Virginia, for Appellant. Dion William Hayes,
MCGUIRE WOODS, L.L.P., Richmond, Virginia, for Appellee. ON
BRIEF: John H. Maddock, III, MCGUIRE WOODS, L.L.P., Rich-
mond, Virginia, for Appellee.


                             OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

   In this case we must resolve whether a bankruptcy trustee can
avoid a transfer of potentially exempt property on the ground that the
debtor transferred the property with the intent to hinder, delay, or
defraud his creditors under 11 U.S.C. § 548 (1994). For the reasons
that follow, we conclude that the trustee may do so.

                                  I.

   The parties agree on the essential facts. In 1978, Kenneth Smoot
began working for CSX Transportation in Virginia. As a condition of
his employment, Smoot joined the United Transportation Union ("the
Union"). In the early 1980’s, in order to supplement his income dur-
ing periods of unemployment or lay-offs from CSX, Smoot estab-
lished an unincorporated entity known as Glass Apple, which offered
home repair and other services.

   In April 1995, after a series of unpleasant dealings with CSX and
the Union in Virginia, Smoot transferred his employment with CSX
to Ohio. Fifteen months later, Smoot suffered a work-related injury
when the flooring of a locomotive engine gave way causing damage
to Smoot’s knees and body. As a result of the accident, Smoot under-
went knee surgery in 1996 and could not work for parts of 1996 and
1997. Due to his health and other personal problems, in June 1997,
Smoot left his position with CSX, sold his home in Ohio and returned
to Virginia.
                         TAVENNER v. SMOOT                           3
   CSX and the Union subsequently brought suit against Smoot for
violations of the Federal Wiretapping Act, 18 U.S.C. § 2511 (Supp.
II 1996), in connection with Smoot’s illegal tape-recording of a meet-
ing, which had been convened to consider Smoot’s grievances against
CSX and the Union. Smoot, in turn, filed suit against CSX under the
Federal Employer’s Liability Act (FELA), 45 U.S.C. § 51 et seq.
(1994), seeking compensation for his work-related injury.

   In January 1998, Smoot incorporated Glass Apple as a Virginia
corporation. Smoot testified at his bankruptcy hearing that he did this
in the hope of establishing a family business and a potential source
of income for himself and his family because he believed that, due to
his injury, he would no longer be able to perform manual labor. The
incorporation papers listed Smoot as the President of Glass Apple, his
wife Katina as the Vice President, his son, Cory, as the Secretary and
Treasurer, and Smoot and his wife as the company’s directors. Katina
Smoot owned 50% of Glass Apple’s stock, and Smoot’s two children
owned, in equal amounts, the remaining 50%; Smoot himself owned
no Glass Apple stock. Through its various divisions, Glass Apple
engaged in a diverse set of operations, ranging from home repair to
music production to off-shore investment. One of these divisions,
Home Check Services, handled the company’s finances.

   On March 30, 1998, the United States District Court for the North-
ern District of Ohio found Smoot liable to CSX and to the Union
under the Wiretapping Act. The court took the issue of the amount of
damages under advisement. Three months later, Smoot and CSX
entered into an agreement settling Smoot’s FELA claim against CSX
in connection with his 1996 work-related injury. Pursuant to the set-
tlement agreement, CSX agreed to pay Smoot $250,000 in exchange
for a release of all of Smoot’s claims against the railroad. After
deducting amounts for advances and other outstanding debts, CSX
deposited a net amount of $217,059.25 into a bank account held
jointly by Smoot and his wife at a credit union in Ohio. That same
day, Smoot wire-transferred $210,000 from the joint account at the
credit union to Home Check Services’ bank account in Virginia.

  In August 1998, the Ohio district court ordered Smoot to pay
$170,000 in damages to CSX and $180,000 in damages to the Union.
4                         TAVENNER v. SMOOT
The following month, the district court ordered Smoot to pay CSX an
additional $25,000 in attorney’s fees.

   During the summer and fall of 1998, Smoot made several pur-
chases using funds from the Home Check Services bank account,
including cars for his wife and daughter and a motorcycle for his son.
Smoot also wrote checks from this account to himself and to his son
Cory for "wages." In addition, Smoot loaned Cory $10,000 from the
Home Check Services account, which Cory used to make a down pay-
ment on a house. During this same period, Smoot wrote two checks
from the Home Check Services’ account made payable to First Union
in the amounts of $100,000 and $40,000; these funds were deposited
into a First Union bank account held in the name of Glass Apple.

   In December 1998, the Union brought suit against Smoot, his fam-
ily members, and Glass Apple in the Circuit Court of Chesterfield
County, Virginia seeking to set aside these transfers as fraudulent or
voluntary and to have these assets made available for satisfaction of
its judgment against Smoot. The Union also filed an ex parte petition
for attachment. After the Union posted the necessary bond, the Vir-
ginia court issued a writ of attachment, ordering the county sheriff to
attach by levy the specified property. Shortly thereafter, CSX filed a
petition to intervene in the suit.

   Before the state court could hold a hearing on its writ of attach-
ment, Smoot filed a petition for Chapter 7 bankruptcy. The bank-
ruptcy schedules, as amended, claimed an exemption in the amount
of $217,000 for the funds Smoot received in connection with the set-
tlement of his FELA suit against CSX. Lynn Tavenner was appointed
bankruptcy trustee. In January 1999, Tavenner filed this adversary
proceeding objecting to Smoot’s discharge in bankruptcy and seeking
to avoid and recover the transfers made with the checks drawn on the
Home Check Services’ account on the ground that, inter alia, Smoot
transferred the funds with the intent to defraud his creditors. Tavenner
also objected to Smoot’s claimed exemption of the $217,000.

   After holding a hearing on the trustee’s objections, the bankruptcy
court issued a written opinion declaring that the trustee could avoid
the transfers and recover the funds, and denying Smoot a discharge
                           TAVENNER v. SMOOT                             5
in bankruptcy. The district court upheld the bankruptcy court’s deci-
sion, and Smoot then appealed to this court.

   In bankruptcy actions, we review the district court’s judgment and
the bankruptcy court’s conclusions of law de novo; we review the
bankruptcy court’s findings of fact for clear error. See Chmil v. Rulisa
Operating Co. (In re Tudor Assocs., Ltd., II), 20 F.3d 115, 119 (4th
Cir. 1994). In assessing the bankruptcy court’s findings of fact, we
must give "due regard . . . to the opportunity of the bankruptcy court
to judge the credibility of the witnesses." Bankr. Rule 8013.

                                    II.

   Indisputably, had Smoot left the proceeds from the settlement of
his FELA suit against CSX in his account, he could have exempted
those proceeds from his bankruptcy estate under Virginia law, which
creates a statutory exemption for money recovered in a personal
injury action. See Va. Code Ann. § 34-28.1 (Michie 1997).1 This case,
therefore, presents the novel issue of whether transfers of property
that would have been exempt from the bankruptcy estate under state
law can be the subject of an avoidance and recovery action by the
bankruptcy trustee, and whether a debtor may be found to have trans-
ferred such property fraudulently.
  1
    Virginia law governs whether the property is subject to exemption
because Virginia has opted out of the federal statutory scheme defining
exempt property. See Va. Code Ann. § 34-3.1 (Michie 1997). As part of
an individual debtor’s "fresh start," the debtor may exempt, and thus hold
free from the claims of the trustee and most creditors, certain property
of the bankruptcy estate. See 11 U.S.C. § 522(b) (1994); In re Massey,
225 B.R. 887, 890 (Bankr. E.D. Va. 1998). The property that may be
exempted includes the property specified in § 522(d) of the Bankruptcy
Code or, alternatively, the property specified by state and general federal
law. See id.; Massey, 225 B.R. at 890. The Bankruptcy Code permits a
state to preclude its residents from taking advantage of the federal
exemptions listed in § 522(d). See 11 U.S.C. § 522(b)(1). "Virginia has
done precisely that." Massey, 225 B.R. at 890 (citing Va. Code § 34-3.1.)
Accordingly, residents of Virginia filing bankruptcy petitions may claim
only those exemptions allowable under Virginia law and general federal
law. See Massey, 225 B.R. at 890.
6                         TAVENNER v. SMOOT
                                   A.

  Initially, we must determine whether transfers of property that
would have been exempt from the bankruptcy estate under state law
can be the subject of an avoidance and recovery action by the bank-
ruptcy trustee.

   As the bankruptcy court noted, in its thorough and well-reasoned
opinion, courts hold "divergent views regarding whether transfers of
exemptible property can be avoided by trustees." Kapila v. Fornabaio
(In re Fornabaio), 187 B.R. 780, 782 (Bankr. S.D. Fla. 1995). Some
courts have followed the so-called "no harm, no foul" approach, hold-
ing that the trustee cannot avoid the transfer because, absent the trans-
fer, creditors could not have reached the property, and thus the
transfer did not harm them in any way. See id. at 782-83; Jarboe v.
Treiber (In re Treiber), 92 B.R. 930, 932 (Bankr. N.D. Okla. 1988).
A majority of courts have rejected this approach, however, noting that
under the bankruptcy laws, as revised in 1978, all property, including
potentially exempt property, is part of the bankruptcy estate until the
debtor claims an exemption for it; consequently, a transfer of poten-
tially exempt property could harm creditors because it might not have
actually been exempted from the bankruptcy estate. See, e.g., Lasich
v. Wickstrom (In re Wickstrom), 113 B.R. 339, 350 (Bankr. W.D.
Mich. 1990). For two reasons, we believe that the majority position
— that transfers of exemptible property are amenable to avoidance
and recovery actions by bankruptcy trustees — is better reasoned.

   First, § 522(g) of the Bankruptcy Code apparently anticipates this
result. See 11 U.S.C. § 522(g) (1994). That statute permits the debtor
to exempt property recovered by the trustee under certain circum-
stances, namely if the debtor could have exempted such property had
it not been transferred and if the transfer was involuntary and the
debtor did not attempt to conceal the property. See id. Section 522(g)
is, thus, premised on the notion that a bankruptcy trustee can avoid
the transfer of exemptible property and recover the property.

   Second, as the Wickstrom court explained, the "no harm, no foul"
approach is misguided. Under a statutory scheme in which all prop-
erty is presumed to be part of the bankruptcy estate, and no property
is exempt until such time as the debtor claims an exemption for it,
                           TAVENNER v. SMOOT                             7
creditors can be harmed by transfers of potentially exempt property
because it is not a foregone conclusion that such property will be
exempt from the estate. Potentially exempt property can be used to
satisfy the demands of the creditors if the debtor never claims the
exemption. Thus, the so-called "no harm, no foul" approach is incon-
sistent with the Bankruptcy Code. For these reasons, we conclude that
transfers of potentially exempt property are amenable to avoidance
and recovery actions by bankruptcy trustees.

                                    B.

   We next turn to the question of whether Smoot can be held to have
transferred the FELA settlement proceeds fraudulently. The trustee
seeks to avoid the transfer of this exempt property under 11 U.S.C.
§ 548(a)(1)(A), which states, in pertinent part:

     The trustee may avoid any transfer of an interest of the
     debtor in property . . . that was made . . . on or within one
     year before the date of the filing of the petition, if the debtor
     voluntarily or involuntarily —

          (A) made such transfer . . . with actual intent to
          hinder, delay, or defraud any entity to which the
          debtor was or became, on or after the date that
          such transfer was made . . ., indebted.

Smoot claims, however, that these transfers cannot be characterized
as fraudulent because it is impossible to hinder, delay or defraud cred-
itors by transferring property to which the creditors were not entitled
in the first place.

   Notwithstanding Smoot’s protestations to the contrary, such trans-
fers surely can be characterized as fraudulent, so long as the debtor
had the requisite fraudulent intent. Nothing in § 548 indicates that a
trustee must establish that a fraudulent conveyance actually harmed
a creditor. Nor does § 548 exclude from its scope transfers of exempt
property. See 11 U.S.C. § 548(a)(1)(A). Rather, § 548 states that
"[t]he trustee may avoid any transfer of an interest of the debtor in
property" if the transfer or obligation is entered into with the requisite
intent. 11 U.S.C. § 548(a)(1)(A) (emphasis added).
8                         TAVENNER v. SMOOT
   Section 548 properly focuses on the intent of the debtor, for if a
debtor enters into a transaction with the express purpose of defrauding
his creditors, his behavior should not be excused simply because,
despite the debtor’s best efforts, the transaction failed to harm any
creditor. See Davis v. Davis (In re Davis), 911 F.2d 560, 562 (11th
Cir. 1990) ("To hold now that there occurred no transfer of property
with the intent to hinder creditors merely because the debts on the res-
idence exceeded its . . . value would be to reward appellant for his
wrongdoing, which this court refuses to do.") (quoting Future Time,
Inc. v. Yates, 26 B.R. 1006, 1009 (M.D. Ga. 1983)). Perhaps for this
reason, a number of our sister circuits have held that the value of the
transferred property to the creditors has no relevance in determining
whether the debtor acted with intent to hinder, delay, or defraud the
creditors. See Bernard v. Sheaffer (In re Bernard), 96 F.3d 1279,
1281-82 (9th Cir. 1996) (depletion of assets not a prerequisite to
denial of bankruptcy discharge when property transfer was made with
intent to defraud creditors); Davis, 911 F.2d at 562; Smiley v. First
Nat’l Bank of Belleville (In re Smiley), 864 F.2d 562, 569 (7th Cir.
1989) ("[S]o long as there is an intent to hinder, delay or defraud in
combination with an act such as a transfer, then a debtor should be
denied the privilege of discharge."). Today, we too so hold.

   In this case, the evidence amply supports the bankruptcy court’s
finding that Smoot transferred the FELA proceeds to Glass Apple
with the intent to hinder, delay, or defraud his creditors. In the context
of § 548(a)(1)(A), courts closely scrutinize transfers between related
parties. Indeed, such transfers, if made without adequate consider-
ation, create a presumption of actual fraudulent intent. See Hyman v.
Porter (In re Porter), 37 B.R. 56, 60-61 (Bankr. E.D. Va. 1984); see
also Pavy v. Chastant (In re Chastant), 873 F.2d 89, 91 (5th Cir.
1989). This presumption establishes the trustee’s prima facie case and
shifts the burden of proof to the debtor to establish the absence of
fraudulent intent. See Porter, 37 B.R. at 61. Here, Smoot transferred
$210,000 of the proceeds from his settlement with CSX to Glass
Apple, a corporation owned entirely by members of his immediate
family, and received no consideration in exchange for this transfer. A
transfer of this kind suffices to establish the presumption of fraudulent
intent, see Graven v. Fink (In re Graven), 936 F.2d 378, 383-84 (8th
Cir. 1991), and Smoot offered no evidence to rebut this presumption.
Thus, the bankruptcy court hardly erred in concluding that such trans-
                          TAVENNER v. SMOOT                            9
fers were fraudulent and subject to avoidance by the bankruptcy
trustee.

                                  III.

   The bankruptcy court also held that the trustee could avoid the
transfer and recover the transferred property on another ground. Spe-
cifically, the court held that, at the time Smoot transferred the funds,
he was insolvent and he did not receive reasonably equivalent value
in exchange for the transferred property. See 11 U.S.C. § 548(a)(1)(B)
(the trustee may avoid any transfer of an interest of the debtor in
property made within one year of the date of the filing of the petition,
if the debtor (i) received less than a reasonably equivalent value in
exchange for such transfer or obligation and (ii) was insolvent on the
date that such transfer was made). We agree that § 548(a)(1)(B) pro-
vides an alternative, independent basis for avoiding the transfer.

   Smoot argues to the contrary, asserting that he did receive reason-
ably equivalent value in exchange for the transfer of the settlement
proceeds to Glass Apple. He maintains that he invested the settlement
proceeds in Glass Apple in the hope of providing a continuing source
of employment for himself and his family. But, indisputably, Smoot
received nothing of material value — not stock, not a mortgage, not
a promissory note — in exchange for the $210,000 that he transferred
to the corporation. Moreover, because Smoot owned no Glass Apple
stock, he did not benefit from any increase in the value of the corpora-
tion’s stock that may have resulted from the transfer. Nor did the
company execute an agreement promising to continue to employ
Smoot in the future in exchange for the transferred funds. In sum,
Glass Apple provided nothing to Smoot in exchange for the $210,000.
Although Smoot’s desire to provide for his family is commendable,
courts have consistently held that a transfer motivated by love and
affection does not constitute reasonably equivalent value for the pur-
poses of 11 U.S.C. § 548. See, e.g., Porter, 37 B.R. at 61. In sum, the
bankruptcy court correctly concluded that Smoot did not receive
equivalent value in exchange for the transfer of the $210,000.

  Furthermore, the bankruptcy court also properly concluded that
Smoot was insolvent when he transferred the funds.2 At the time
  2
   Courts generally rely upon the Bankruptcy Code’s definition of insol-
vency for the purposes of § 548(a)(1)(B). See Porter, 37 B.R. at 61. Sec-
10                          TAVENNER v. SMOOT
Smoot transferred the $210,000 to Glass Apple, the Ohio district court
had found him liable to CSX and the Union for violations of the Fed-
eral Wiretapping Act, but had not yet determined the amount of dam-
ages. The bankruptcy court found that, even making the unlikely
assumption that the Ohio court would award no damages in the
wiretapping case, at the time of the transfer, Smoot’s total assets
amounted to $21,000 and his liabilities exceeded $40,000, thereby
rendering him insolvent.3 Smoot has failed to provide any evidence
suggesting that the bankruptcy court’s determination was erroneous,
nor does the record reveal any such evidence. Thus, because Smoot,
while insolvent, transferred $210,000 to Glass Apple without receiv-
ing any consideration in return, the trustee was entitled to avoid the
transfer under § 548(a)(1)(B), as well as under § 548(a)(1)(A).

                                    IV.

   Finally, having concluded that Smoot transferred the proceeds from
the settlement agreement with CSX with the intent to defraud his
creditors, we affirm the bankruptcy court’s judgment denying Smoot
a discharge in bankruptcy. See 11 U.S.C. § 727(a)(2)(A) (1994) (pre-
cluding the grant of a discharge in favor of a debtor if the debtor

tion 101(32) of the Bankruptcy Code provides that, for an individual,
insolvent means:
     [A] financial condition such that the sum of such entity’s debts
     is greater than all of such entity’s property, at a fair valuation,
     exclusive of —
         (i) property transferred, concealed, or removed with intent to
         hinder, delay, or defraud such entity’s creditors; and
         (ii) property that may be exempted from property of the
         estate under section 522 of this title.
11 U.S.C. § 101(32) (1994). All liabilities must be considered in deter-
mining whether a debtor was insolvent at the time of the transfer in ques-
tion. Porter, 37 B.R. at 61.
   3
     For the purposes of the insolvency determination, we exclude the pro-
ceeds from the Settlement Agreement with CSX. See 11 U.S.C.
§ 101(32)(ii).
                          TAVENNER v. SMOOT                           11
transferred property with the intent to defraud his creditors within one
year of the date of filing a petition for bankruptcy).

   In sum, because abundant evidence supports the bankruptcy court’s
findings of fact, and no error taints its legal conclusions, the judgment
is, in all respects,

                                                           AFFIRMED.
