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I would remove anything that is loose enough to come off/out with a good wirebrushing (I would ues one rotating steel brush on the end of a drill), then stop the rust with some Navy Gel (sulfuric acid based), then a few coats of good oil based or epoxy based primer, then fill it all in with West System Epoxy, feather it smooth and paint with barrier coat (if you have that now) and then re-apply the bottom paint....
An hour at the West Marine store and an afternoon on the driveway...
You will get others to chime in, perhaps with different solutions...
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