To my knowledge, characters are only deleted by the person who owns the account. Characters that have been banned for whatever reason (Account hacked/stolen, modified client, botting, etc.) are not deleted as the admins maintain a database of all banned characters for reference purposes.
Besides, "character creation failed" is not the error you get when a name is already taken. I think there's a dedicated message for that, like "That name is unavailable." The error "character creation failed" is because you're trying to create a character on a realm you're not suppose to be playing on. Check
this sticky out for more info. Follow the steps to ensure you don't have the "Player Test Realm" selected when trying to create a character.