That's pretty bad. You're gonna have to grind all of the rust away. Which, in your case, will end up being a hole.
So...
1. Cut/grind/etc entire rust area out until you reach completely fresh metal.
2. Weld in new metal.
3. Grind welds.
4. Hammer/dolley radius to match 1/4 "bubble" that our 1/4's have.
5. Sand repair area with 36 grit.
6. Sand immediate surrounding area with 600.
7. Scuff rest of 1/4 with a red scuff pad.
8. Apply filler on bare metal spreading it into the paint, no need to get crazy with this since you'll probably be applying a couple coats of filler.
9. Sand filler. Working your way from 36 grit down to 120 grit. Re-apply filler if needed and repeat until satisfactory.
10. Once the filler is straight then final sand with 220.
11. Spray etching primer over bare metal areas.
12. Spray primer surfacer (high build primer) over repair area blending into paint.
13. You're gonna want about 4 coats of primer surfacer.
14. Wait overnight.
15. Spray guide coat over primer surfacer.
16. Sand with 220 until guide coat is gone. (If you don't know about guide coat then youtube it, I'm sure there's videos on it.)
17. Finish sanding primer surfacer with 400 and a red scuff pad.
18. Spray entire repair area with black sealer, blending into paint.
19. Spray basecoat, blending just past sealer. Don't skimp on basecoat when buying it. Cheap paint is more transparent and you end up getting no financial advantage since you'd only need a few coats of good basecoat but upwards of 10 coats of cheap stuff. I suggest ShopLine or Omni. Either one will be fine since it's straight black. Get PPG if you want the good shit.
20. Apply 2 coats of clear. Spray 3 coats if you plan to sand the clear down like glass.
21. Wait a week before sanding/buffing to prevent die-back of the clear so it stays looking good for more than a year or two.
If you need help with any of it you can always message me on facebook.