The ex-England number one earned more than £20m over the course of his 25 year playing career, and made more than 200 Premier League appearances for Liverpool, won a League Cup trophy with the Anfield club and an FA Cup with Portsmouth.
The 43-year-old now works as a TV pundit for BT Sport, but has built up onerous debts following his divorce from ex-wife Tanya in 2005.
As well as Liverpool and City, James also played Premier League football for Aston Villa, West Ham and Portsmouth.
The report claims his divorce cost him around £3m plus a proportion of future earnings. At the time of the separation, the couple had several properties together and James was reportedly worth £6m.
He now works alongside a number of ex-pros as a pundit for recently launched BT Sport, while he also models for luxury clothing brand Armani.
James, who made 53 appearances for England, last appeared for his country at the 2010 World Cup. He replaced Robert Green as England number one following Green's howler against the United States in the first group match.
James retired from professional football last year while playing for IBV, a team in Iceland.