Today the new bankruptcy code is celebrating its first birthday – at least the creditors are celebrating. For everyone else, maybe it's time to take a step back, admit that we brought an ugly baby into the world, and get to work fixing this little monster up.

One of the biggest problems? The new code increased the cost of bankruptcy for debtors who are already broke. Liz Pulliam Weston of MSN Money points out that basic filing costs are about $200 higher, and attorney-time required is up more than 50% - all this for a vanilla filing. Need a non-basic filing or actually want to litigate an issue? If you're in Chapter 7 (where a debtor's assets are liquidated for an immediate discharge of debt), you'll have to cough up the cash first since attorneys generally require money up front. In the real world this means these debtors either don't file at all, or they get basic legal services only. For Chapter 13 (where debtors generally keep their stuff and pay back creditors over time), attorneys may be able to get paid out of the estate. Notice, this means debtors with incomes high enough to manage a repayment plan have bankruptcy as an option. But the poorest debtors are stuck between a rock and an up-front legal bill.

As for filing levels, Congress seemed to want to bring the number down, why I am not really sure (other than that the creditors like being able to pressure consumers without a bankruptcy judge and trustee around.) This was another bust. News of the new code pushed 2005 filings to an all time high of two million (accompanied by hundreds of millions of dollars in unexpected write-offs for lenders.) Filings did dip in the beginning of 2006, but there was a sharp rebound in the second quarter. Now, some bankruptcy attorneys predict we’ll have pre-reform levels of filings by October 2007.

What about all of these "bad" debtors, the scoundrels and spendthrifts Congress was so worried about? You know, the ones who could repay their debts but chose not to, just because bankruptcy is so much fun. Thanks to the pre-filing credit counseling requirement, we at least have a better sense of what the filing population looks like. And credit counselors have reported that less than 5% of filers have the ability to repay any of their debts. Less than 5%! So wait a second – we just built a new system that increased costs for people who already have no ability to repay their debts?

Liz Weston's proposed fixes make a lot of sense, including: (1) reducing the paperwork required for low-income filers, and (2) funneling more resources into low fee and pro bono legal services. Even creditors shouldn't argue with the first idea. After all, less money spent on legal fees means more they can try to get their grubby little hands on. Providing better access to legal services is a related but even more important point, because it would level the playing field. This could give deserving debtors a shot at the fresh start the law was built to provide. Otherwise, we're not just cutting off people trying to abuse the system, we're also cutting off the "too poor for bankruptcy" population. Creditors may be comfortable with this backwards state of things, but the rest of us shouldn't be.