Well, failing the 10th ring doesn't cause you to start all over. You just turn in the Dirk and say the phrase again for another declaration.
The problem right now is that many people had their Dirk's eaten at faction levels where it shouldn't have been eaten (basically any non-KoS faction). Once petitions get people their dirks restored and a patch allows Dirk turnins at Dubious and above, all will be right.
I believe the Dirk gives a hidden flag allowing you to say the phrase and receive the Declaration, at least that's how it was on beta.
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