Kerry Katona may face losing her £1.2million home if she can’t pay a £200,000 tax bill by Christmas.

The former Atomic Kitten star is said to owe £700,000 in unpaid taxes with the first instalment due in the next week.

A source close to the family told the News of the World that her lawyer is trying to delay payments until the new year because “Kerry simply hasn’t got the cash to pay.”

“Her finances are a complete mess and the situation has become very serious indeed. It’s a real prospect that she’ll be declared bankrupt.”

“There’s interest being run up on what Kerry owes, so the bill gets bigger and bigger.”

“Kerry is facing a funding emergency and is so away with the fairies that she doesn’t know how to cope. She doesn’t fully grasp the seriousness of the situation.”

“She just spends what comes in and doesn’t put any aside for the taxman.”

Kerry, who is currently expecting her fourth child, and husband Mark Croft have a collection of luxury sports cars but they are believed to have been bought on finance agreements so can’t be turned into cash on demand.

Kerry also revealed this week that her long-standing drug problems may not be completely behind her. In the past she has denied she still has a problem with cocaine but told Friday Night with Jonathan Ross recently: “I can’t honestly hold my hands up and say, ‘I won’t touch a drug again’.”

“I don’t know what’s gonna happen tomorrow. I can never say never. I really can’t.”