Crap...Now what?

http://pg.photos.yahoo.com/ph/scamp_of_doom_73/album?.dir=/6fd3


What should I do? I need to get enough clearance so I can get rid of the gap at the bottom of the flange. I dont really want to bash the headder tube but this car is going to be a daily driver for my girlfriend so performance isn't an issue.
What would you guys do?