The Duchess of York is doing "everything she can" to avoid bankruptcy, her spokesman has said.
Sarah Ferguson is believed to owe around £2m in business debts.
Her spokesman said the situation was "being managed", with all her personal debts having been paid off, but bankruptcy was "an option".
The comments came after a report in the Sunday Telegraph suggested the duchess owed around £5m in both personal and business debt.
The Sunday Telegraph also suggested the state of her finances had caused the Queen to be "deeply concerned" and said at least one key Royal adviser believed bankruptcy was now the best option.
But her spokesman dismissed the figures as "significantly" exaggerated.
"The only debts she has are business debts, some of which are disputed. All her personal debts have been paid," he said.
"There is a number of options open to the duchess of which bankruptcy is one. But it would be premature to say she is going into bankruptcy as the situation is being managed."
The duchess went public with her financial problems in May after being caught in a "cash-for-access" scandal.
She was filmed accepting money from a News of the World reporter - posing as a business tycoon - in exchange for an introduction to her ex-husband, Prince Andrew.
During a subsequent interview with US chat show queen Oprah Winfrey, the former royal owned up to being "substantially" in debt, but would not say by how much.
Sarah Ferguson married Prince Andrew in 1986 and the couple had two daughters, Beatrice in 1988 and Eugenie in 1990.
Although they separated in 1992 and divorced in 1996, she and their daughters later moved back into a wing of the former marital home and maintain a close relationship with the Duke of York.
Prince Andrew's role as UK trade envoy involves promoting British business at home and overseas.