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Sarah Ferguson, Duchess of York, arrives for the Foundation for AIDS Research annual gala in New York in February 2010. ((Carlo Allegri/Reuters))

Sarah Ferguson, the Duchess of York, is facing possible bankruptcy, a British newspaper reported Sunday.

In a front-page story, the Sunday Telegraph said Ferguson's personal and business debts total five million pounds.

The paper, quoting a "senior royal source," said a senior financial adviser to Buckingham Palace has recommended the Duchess file for voluntary bankruptcy.

The Telegraph report said British Prime Minister David Cameron has been briefed on the situation and that "the problem is believed to have been discussed recently during one of his weekly private audiences with the Queen."

A spokesman for Sarah Ferguson released a statement in response to the report saying the Duchess is doing "everything she can" to avoid bankruptcy.

The spokesman said all her personal debts have been paid off, but acknowledged that bankruptcy was "an option" to deal with her business debts, which the spokesman said the Telegraph report had "significantly" exaggerated.

News of Ferguson's ongoing financial problems resurfaced in dramatic fashion in May, when she was secretly filmed appearing to accept money in return for arranging an introduction to her ex-husband, Prince Andrew.

The Duke of York works as a trade envoy for the British government.   

Ferguson later said she had been drinking during the "cash-for-access" incident and apologized for her actions.

With files from The Associated Press