Help with Debt Due to Fraud

Remember that fabulous night out – Dinner! Drinks! — with a posse of your closest friends at one of those Michelin 5-star restaurants a couple of months back? Boy, what a party! The bar tab alone was $750.

No? You don’t recall that, or even being out that evening? Too bad, because you apparently owe big bucks for it. Says so right there on your overdue credit card bill, in black and white or, depending on the state of your resources, red ink.

You tried to ignore it, but now you’re getting threatening calls from a debt collector. You’ve been victimized. Someone used your name and credit to throw a mighty fine wining and dining shindig and assigned the charge to you.

Sadly, it happens, and when it does, it’s maddening. Debt you don’t really owe due to fraud like that can gum up your finances royally. The flim-flam generally takes one of two forms: Credit card fraud involving charges you didn’t make (like for a night out on the town), or debt collection fraud concerning accounts you didn’t open. In both situations, you’re being told you owe money for something you didn’t initiate.

When it happens to you, remember the first rule of fraudulent debt: Fight back. Identify the problem and respond to it as soon as possible to get that fake debt off your record and start repairing the damage it’s done to your credit. We’re going to walk you through ways to do that here, but they all start with this: Be proactive. As Eric Croak, a personal finance expert who deals regularly with fraudulent debt as president of Croak Capital in Ohio, says, “Silence is not an option.”

Understanding Fraudulent Debt

Maybe you’ve been scammed into believing you owe money on a fake account, or on an old debt a crooked collector claims is still outstanding. Maybe you misplaced a credit card or lost a wallet, and an unscrupulous finder is profiting from it. Regardless, you’re being squeezed to pay for something you didn’t buy. It’s a miserable experience.

“I would argue that [fraudulent debt] is one of the most impactful financial life events there is for the simple reason that it combines chaos, urgency, and victim shaming in one neat package,” Croak says.

When you’re saddled with fraudulent debt, the pay-up-now-or-else pressure from the fake creditor trying to rip you off can be intense.

What is Fraudulent Debt?

Some of the ways fraudulent debt can happen include:

• Identity theft. When someone gets access to your personal information and uses it for their own gain.
• Fraudulent accounts. When someone creates a bank account in your name or hacks into one of your existing accounts to use your money or credit.
• Unauthorized charges. When someone makes transactions with one of your credit or debit cards without your permission.
• Phantom debt collections. When someone poses as a collector to harass or scare you into giving them money for debts that don’t exist or that you’ve already paid.

It can happen in many ways. Sometimes, it’s just a clerical error. But Croak sees a range of more serious fraudulent debt cases that includes identity theft by mail, password recycling, retailer breaches, bogus employment histories, credit repair scams, medical billing deception, credit report mix-ups, careless web usage, and a host of others.

However it occurs, you end up stuck with debt for which you shouldn’t be responsible and about which you have no knowledge until someone starts leaning hard on you to pay up.

What to Look For

Keep an eye out for red flags in your finances, starting with this no-brainer: Charges on your credit card bills that you didn’t make, like, say, a $750 Michelin 5-star restaurant bar tab.

Most credit card companies help with this by contacting you about unusual-looking transactions, but don’t leave it up to them. Monitor your itemized charges online or on your monthly bill, or both. Same goes for your checking, savings, or other credit accounts. If you see something that doesn’t look familiar, investigate it.

Another red flag: An out-of-the-blue call or letter from someone claiming to be a debt collector and asking for personal information such as your Social Security number, credit card or bank account numbers, or medical insurance account numbers. Don’t share that stuff. Instead, ask the caller your own questions about the company he or she supposedly is representing – name, address, phone number, email, etc. – and take notes. Be especially suspicious if the collector threatens you, insists you settle the debt immediately, or tells you to pay up through an untraceable method such as gift card or wire transfer.

Listen to the warning sirens, too, if you notice a sudden drop in your credit score. Assuming the drop wasn’t caused by your own late payments or recent purchases, it’s possible someone has opened accounts in your name and used your credit for themselves. Check your credit report for new accounts you didn’t initiate, credit applications you didn’t submit, addresses that don’t belong to you, and unfamiliar debts sent to collections.

If something looks, sounds, or smells fishy, don’t ignore it. Secure your identity protection as soon as you suspect something is amiss. The longer you wait to act, the more the fraud can compound. The fake debt you supposedly owe can grow through interest charges and late payment fees, escalating the severity of the damage it does to your credit.

Immediate Steps to Take When You Discover the Fraudulent Debt

The key word (one of them, anyway) here is “immediate.” When someone is defrauding you, or even when you suspect someone might be defrauding you, don’t hesitate to start the investigation process and, if necessary, correct your financial record. Waiting can be costly.

“When a fraudulent account is reported to credit bureaus, collectors start to pursue it, and the longer its false existence lingers on your reports, the harder it is to have it closed,” says Mario Serralta, the founding lawyer of Mario Serralta & Associates and a certified public accountant. “I knew a man who ignored a phony medical bill since he never sought treatment, and that single account held up his mortgage approval years down the line.”

Here are moves you should make as soon as you suspect or realize you’ve been victimized by fraudulent debt:

• Contact the creditor or debt collector. Tell them you’re a victim of fraud or identity theft and ask for specifics about the charge or account in question.
• Request documentation in writing that validates (or invalidates) the debt, including account statements. You’re looking for proof that you don’t owe the money.
• Place an immediate hold or stop on the account that has been compromised, if possible. (We’ll address credit freezes and fraud alerts in the next section.)

If it’s a fraudulent charge on one of your credit cards, make your first call to the issuer’s phone number on the back of the card and report the fraud. You can request a new card right then to prevent additional fraudulent charges. You might need to follow up with a formal dispute letter and documentary evidence, but in many cases that first call, and a new credit card, takes care of the problem.

Again, you want to get in the way of the fraud process as soon as possible. Take those steps even before you alert the authorities to the fraud or identity theft.

Report the Fraud and Activate Credit Protections

What’s happening to you is very likely against the law, meaning you should file a report with local law enforcement as an early step in the solution to your problem. It’s possible the local police or sheriff’s department has fielded similar complaints from other victims and already has an investigation under way.

Beyond your local authorities, you can and should report the fraud to the Federal Trade Commission (FTC) on its website at ReportFraud.ftc.gov, or by phone if you prefer. If your case clearly involves identity theft, the FTC site has a reporting page specific to it: IdentityTheft.gov.

You can also alert your state attorney general’s office and file a report to the Consumer Financial Protection Bureau through the complaint portal on the CFPB website.

This can be a frustrating process, as you might imagine. None of it is fun, and it isn’t likely that any of it will result in an immediate resolution. But it’s wise to cover every base in your fight against the fraud.

“Reporting fraud can be a tedious and frustrating process, but it’ll protect you in the end,” says Steve Azoury at Azoury Financial in Michigan. “If you’re being harassed or threatened, don’t ignore it. It’s a crime and it could put you in a tailspin.”

As we mentioned earlier, it’s important, too, to place a credit freeze or fraud alert with the three major credit bureaus: Equifax, Experian, and TransUnion. If you’re a victim of identity theft, either move can help stop the person who stole it from using it again. And both make it more difficult for someone to use your name to open new accounts.

A credit freeze restricts access to your credit report, making it invisible to lenders so that no new credit applications such as loans or credit cards will be approved. That stops thieves from opening new accounts in your name. When you need access, you can temporarily lift the freeze or end it permanently. There is no charge to placing, lifting, or removing a freeze, and it does not damage your credit score. One caveat, though: A credit freeze doesn’t protect against fraud involving one of your existing accounts, so you’ll want to monitor them.

A fraud alert filed to the credit bureaus tells potential creditors that you might be a victim of identity theft. It’s a warning that appears on your credit reports, steering creditors to take extra steps to verify your identity or contact you personally before they extend new credit to you. As with a credit freeze, a fraud alert only protects against fraudulent new accounts and non-existent accounts. But it also doesn’t cost anything to place one with the credit bureaus.

Protecting Your Kids and Dependents from Fraudulent Debt

You can request that the three major credit bureaus place a protected consumer freeze on credit files for your child or dependent, even if he or she doesn’t yet have a credit history. As long as the child or dependent is under 16, a protected consumer freeze safeguards against somebody trying to open a new account in his or her name. As with credit freezes for adults, a freeze for a child will stay in place until you tell the credit bureaus to remove it.

The process for a protected consumer freeze for a child or dependent is slightly different than requesting a credit freeze for adults. The instructions are available at the credit bureau sites.

There are common-sense precautions you can take, too, to protect your child from identity theft. Make sure you keep documents with his or her personal information (birth certificate, Social Security card, medical bills) in a secure place. If you intend to dispose of them for some reason, shred them rather than throwing them away intact.

Be aware that some of your child’s personal information might be on your phone or computer. If you’re replacing your tech, be sure you’ve deleted that info from the old cell phone or computer before you get rid of it.

Disputing the Fraudulent Debt and Cleaning Up Your Credit Report

You want new credit when you need it, and you want that new credit at the lowest interest rate possible. If debts for which you aren’t responsible linger on your credit report, you’ll likely have trouble getting what you want. We’ve said it before, but it bears repeating: When it comes to disputing debt, don’t wait. It’ll cost you.

“Inaction on fraudulent debt often turns a clerical issue into a financial crisis,” says Croak. “Compounding interest and collection fees continue to mount regardless of whether the debt feels valid. A $3,000 balance can inflate past $4,500 over 18 months.”

If you see an unauthorized account, inquiry, or collection procedure on your credit report, dispute it immediately by writing letters to the credit bureaus specifying what the error is and why it’s fraudulent. Include copies of whatever documents you have that support your case along with paperwork you’ve already submitted about the fraud, such as your FTC Identity Theft Report along with the police report. Send the letters by certified mail and request a return receipt. If writing letters isn’t your thing, you can also file your dispute online at each credit bureau’s website.

It likely will take a while; the credit bureaus generally have 30-45 days to scrutinize a dispute. But don’t let them off the hook. Keep buggin’ them and monitor their investigation.

Cover all the bases by taking your dispute directly to the specific creditor or collection agency you think is in error, too. You’re allowed to demand that the collection agency or creditor prove you do, indeed, owe the debt in question if you send a debt dispute letter within 30 days after you receive notice that it’s outstanding. Along with the debt dispute letter, you’ll want to send copies of the same case support documentation you send to the credit bureaus.

If all that sounds like a pain in the you-know-what … well, it can be.

“It’s frustrating when creditors ask for verification over and over again, or when the consumer can’t immediately prove the account was never theirs,” says Serralta.

Unfortunately, it isn’t unusual for a collection fraud to appear on your credit report before you get a positive resolution of your dispute. You should continue to track the status of the debt and, if the issue is still showing up, send a second dispute letter to the credit bureaus requesting that the bad information be corrected or removed from your report.

Managing and Resolving the Fraud-Related Debt

We just outlined the process involved in disputing debt you believe to be fraudulent. Now it’s time to detail the work that goes into making your dispute effective. Some of it is obvious, such as reviewing your credit report. Some of it isn’t, because you’re often up against a clever con artist who knows his or her way around a scam and has faced your sort of resistance before.

If the case you’re making is that a debt has been turned over to a collector in error, you might find that the collection agency has a head start on the information-gathering relative to your plight and knows more about your situation than you do. If the collection effort is a fraud, you’ll have some catching-up to do.

We’ll look next at a couple of the fundamental steps to take to put together the strongest possible argument and avoid the long-term repercussions of the damage fraudulent debt can do.

Confirm the Debt is Not Yours

Sometimes, the case isn’t black or white. There are gray-area disputes in which the fraud might not be completely clear, and you might actually bear some of the responsibility for the debt. You want certainty about the strength of your claim. Before you begin the dispute process, make sure none of the debt is yours.

How? Request details from the original creditor to validate the debt to see if it looks authentic. Ask for copies of signed contracts that could de-legitimize the collection agency harassing you. Also, know that if you request it in a debt verification letter, the collector is required to send you proof (say, a copy of that original contract carrying your signature) that the debt belongs to you. If the collection agency can’t provide that proof, your case improves. Look everywhere for signs of identity theft, such as unfamiliar credit card debt on your credit report, new bank accounts you didn’t open, or a sudden and significant drop in your credit score. If you find it, add it to your arsenal.

Be methodical and thorough about gathering documents that support your position, including copies of all communications between and among you, the collection agency, and the original creditor. When you’ve got them in place, you’re ready to fire off those convincing dispute letters.

Ensure the Validity of Collectors Contacting You

When a debt collector calls from out of the blue, the first things to do are don’ts. As in, don’t divulge any personal financial information. As in, don’t believe any threats that you’re subject to arrest. And as in, don’t pay the off the debt immediately, especially if the demand to do so comes in a cold call.

Instead, start asking questions. What’s the name of the creditor for whom you’re collecting? How much are you saying I owe? At what address can I dispute this debt? What’s your agency’s phone number? What is its professional license number? Debt collectors are required by law to give you those answers. If your collector isn’t forthcoming, don’t trust him or her. Take the time to do your own research into the debt in question. If you got an address from the caller and still have doubts, send a written debt validation letter demanding proof that the debt really belongs to you.

Once you get those verification documents – IF you get those verification documents – look them over carefully. Check for discrepancies in names and dates, including whether the debt is still within your state’s statute of limitations. If the collection attempt still looks fishy, don’t be afraid to ask for help. Nonprofit credit counselors, for example, can guide you through the next steps and options.

If you are satisfied that the collector is valid and the debt is, indeed, yours, you should begin the process of paying it off. A legitimate collection agency might be willing to negotiate payment terms or work with you in other ways to ease the financial pain; a fraudulent agency will be less likely to make a deal with you.

Preventing Future Fraud and Debt

You don’t want to deal with fraudulent debt, ever. And once you’ve been victimized by it the first time, you really don’t want it to happen again. Fortunately, there are ways to safeguard against it whether you’ve experienced it already or not. They include:

• Regularly monitor your bank statements and credit reports for unfamiliar accounts. Check your credit card bills every month for charges you didn’t make.
• Make sure your personal financial information is secure. That means using strong passwords and multi-factor authentication. And don’t communicate sensitive details over unsecured websites.
• Be smart about too-good-to-be-true offers in phishing calls, snail mail, emails, or texts, especially if the solicitor asks you to pay with a gift card or a wire transfer. There’s a reason they’re too good to be true.
• Use a credit freeze or a fraud alert proactively when you suspect you’re at risk.
• Learn how identity theft and other financial scams work. And share that knowledge with your family and friends.

You might consider subscribing to a credit monitoring service to help you track the activity on your credit report and alert you to suspicious activity; numerous companies, including Experian, offer it for free. It’s also wise to keep copies of all relevant communication involving your personal finances (as long as they’re saved in a secure place).

Protect yourself!

When to Seek Professional Help

As we’ve outlined, there are numerous steps in the effort to get out from under debt you don’t owe. The right time to get outside help is when you’re having trouble with any of those steps.

When you suspect collection-scam activity, contacting your state’s attorney general or consumer protection agency can get an investigation started on your behalf. Credit counseling from a certified credit counselor can assist with debt management when you’re faced with multiple fraudulent debts and consequences. Consulting an attorney is in order if the fraud is large-scale or you aren’t clear about your legal rights.

“I would personally recommend professional help when the debt crosses over to more than one account or breaches $1,000,” says Croak. “Multiple collectors, court summons, or housing denials are all signs that it’s past the escalation point. From what I’ve seen, time is more valuable than pride at that point. Specialists know the right deadlines and verbiage to slow it down fast. The longer you wait, the more permanence fraudsters get.”

Serralta suggests reaching out for professional help when your dispute efforts have stalled, when the fraudulent debt is affecting credit decisions in your financial life, or certainly when you start receiving court orders about late payments on debt you don’t owe.

If you can fight those battles on your own, great. But know that help is available when you need it.

Fraudulent Charges and Debt Can Happen to Anyone

Yes, anyone. That means it can happen to you. The 2025 Fraud and Identity Theft Report from a September survey by IPX1031, a Fidelity National Financial company, shows that 31% of Americans have been victims of identity theft and a whopping 51% have been scammed in some way at some point in their lifetime.

Those stats should scare you into vigilance about fraudulent debt, which makes this a good place to summarize the concrete actions you can take to regain control of your finances when you’ve been one of its victims.

• Recognize the issue
• Place immediate holds or stops on compromised accounts
• Report the fraud
• Gather documents to bolster your case
• Dispute the debt
• Manage and resolve the damage to your credit
• Take measures to keep it from happening again

Being stuck with a debt you don’t owe is stressful. Disputing it is aggravating. There’s no way to sugarcoat that.

“It’s often discouraging because the burden of proof is on the victim,” Croak says. “Documentation typically involves police reports, identity theft affidavits, and written disputes that get mailed to several parties with rigid deadlines. It’s not uncommon for me to see people invest 15-20 hours over 60 days just to release an account under $5,000.”

But it’s worth doing. Fighting back might be unpleasant, but the ramifications of allowing the fraud to continue will be worse. Stay on top of your finances. Make use of the resources available to help you do it. For example, check and then re-check your credit report for mistakes. You’re entitled to one free credit report on a weekly basis from each of the three major credit-reporting companies – TransUnion, Experian, and Equifax. Get them and use them.

Keep your money safe from scoundrels. When you do, you can know the bill for a bash with your buddies will include a legitimate bar tab.