In this case, lo is just like the as in el or la, but it's a neutral the (as opposed to being masculine or feminine) used for abstract nouns such as "the worst." It's not being used as the direct object form. Here's some more information on it's use: http://spanish.about.com/od/sentencestructure/a/lo.htm
Iago, Hungoverand bbbindle gave the right answers; this is just additional information.
Think of the movie title "The Good, the Bad and the Ugly." There is a rule in English that, if you put the word "the" in front of an adjective, you can then use the adjective as a noun, as in the sentence "The good, the bad and the ugly are always with us." Another sentence using an adjective as a noun is "The worst has passed already." It's the same with "lo" In Spanish. If you put the neutral gender pronoun "lo" before ANY adjective, you can use that adjective as if it were a noun.
What's also interesting is that the words "los" and "el" are used in the same way as English prepositions when these words are used in phrases like "los sabados" (on Saturdays) and "el lunes" (on Monday). Every language uses its function words differently. That's why it's called colloquial usage.
Somewhere else someone posted that when "ya" is used with past tense, it means "already, but when it's used with present tense it can also mean "now." Additionally, they added that "ya" can be used with future tense, but I can't remember what it means when "ya" is used that way.
If I were translating a novel, I think that would be a valid translation. But since this is a language-study exercise, it may wander too far away from the cognate "passed", simply because it's not a verb-form. "happened" is also a verb form. In doing exercises, it's always a good idea to use a valid cognate, unless there's a good reason to use some other word.