I am not a MA lawyer but from my research on the internet it appears that other taxpayers have called the Rules & Regs division of the MA Dept of Revenue this past year for a similar situation. Here is what was uncovered by my search:
"MA does follow Federal laws regarding COD for insolvency. Forgiveness of Debt income would normally be on Schedule X, other income. Since there is no MA equivalent to the Form 982, I was unsure whether or not to paper file and attach a schedule showing the COD reported on the 1099 and then indicating it was not taxable due to insolvency. The person I spoke with at the DOR said that this was not necessary and I can e-file the return leaving Schedule X blank. " To be sure a call to the Department of Revenue (DOR) to confirm would be most prudent.
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Massachusetts does follow an earlier version of the Internal Revenue Code exception to income where debt is forgiven and the taxpayer is insolvent at the time of the foregiveness. I highly recommend you have a very qualified tax preparer (such as a tax lawyer, as I am), and fill out both the federal and state return very carefully as these issues get audited frequently and can cost much more to you as an audit than a little extra in the preparation.
Contact a local tax professional to determine if MA complies with Fed law in this area and ask them what equivalent form would then need to be filed.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.