Does unpaid bad credit simply get removed from your credit report after 7 years? Is it like that debt never happened? Does the removed debt continue to effect your credit score once it has been removed?

Delinquit accounts are supposed to be purged from the reporting agencies after 7 years. Sometimes this happens automatically, other times you may have to prod the credit bureaus. Its also possible for collection activity to start the clock again.

No its not like the debt never happened. The fact is you are responsible for the debt until its been paid off.