Despite being informed that the 93-year-old lady had dementia and was unable to manage her affairs, government ministers nonetheless held her accountable for accruing benefits overpayment bills, and as a result, they formally apologized and reimbursed £7,000 to her.

As part of its investigation into overpayments of carer's allowance, the Guardian uncovered the instance, which Mims Davies, the minister for disability, acknowledged was "disturbing."

In the growing scandal, tens of thousands of unpaid carers have been plunged into debt after they unwittingly broke strict benefits rules, and some have been left with criminal fraud convictions as a result of the Department for Work and Pensions (DWP) pursuing them through the courts.

The agreement to write off the debt of the 93-year-old, who the Guardian has chosen not to name, comes as ministers have promised to try new ways of sharing information with carers to try to prevent them building up months and years of overpayments.

The DWP said it would explore sending texts or emails to carer’s allowance claimants when it received official notification they had they breached earnings limits of £151 a week. This would encourage recipients to contact officials to sort out any potential problems, and reduce the risk of overpayments building up, it said.

The woman in this most recent case was paying back hundreds of pounds a month from her pension and life savings after officials accused her of failing to inform them of changes that made her ineligible for a benefit payment

The DWP had rejected an appeal from her daughter and carer, Rose Chitseko, that her mother had been too unwell to notify them because she had advanced Parkinson’s. Although it could have used internal data to prevent the overpayment occurring in the first place, her benefits continued to be paid and the officials chose to claw back more than £7,000 in overpaid benefits.

Chitseko said she was relieved her mother’s ordeal was over. She urged the DWP to be “more humane” in its treatment of vulnerable claimants, and use discretion when enforcing overpayments. “Here you had an elderly lady whose powers were declining … if that’s not a case for discretion, what is?” she said.

She said she was disappointed the DWP failed in its letter of apology to explain why it clawed back the money: “They apologise, which is something, but they don’t explain why they took the money in the first place.

“It’s frustrating that they don’t explain. They give me a number to call for information but if they don’t want to say anything they’re not going to say anything.”

Overpayments happen when someone who claims £81.90 a week carer’s allowance for looking after a frail, disabled or ill relative breaches a £151 a week earnings cap. A breach of that limit, even by a penny, means the claimant is forced by the DWP to repay the whole benefit. If this is undetected, it can lead to huge overpayment demands.

There are more than 150,000 unpaid carers paying back overpayments – and in some cases being prosecuted for fraud – after falling foul of earnings rules. About 11,600 carers are repaying sums of more than £5,000. About one in five unpaid carers in part-time work breached the weekly earnings limit last year.

MPs and charities welcomed the move to proactively contact carers in principle but said it came far too late to help the tens of thousands already affected, some of whom now had criminal records and debts they would be repaying for years as a result of the DWP’s failure to share earnings breach information with carers in timely fashion.

The Guardian has documented how earnings overpayments – in most cases the result of genuine mistakes by claimants – coupled with draconian recovery policies have led not just to financial hardship for carers but an “avalanche of utter stress”, depression and emotional problems.

Emily Holzhausen, director of policy at Carers UK, said: “This is the minimum that we’ve been calling for in our campaign to get the DWP to tackle the terrible situation of carers’ overpayments, which causes so much distress and heartache. It’s time to write off these debts, and for the government to work with carers to develop a system that actually helps them – both financially and in their caring role.”

Five years ago the DWP promised to use new technology to “stop overpayments occurring in the first place” but has since failed to properly resource the unit that checks earnings alerts it receives electronically from HMRC. Only half of all alerts are routinely investigated. There were 34,500 earnings overpayments last year.

The government is under increasing political pressure to introduce wider changes to carers allowance. The Liberal Democrat leader, Ed Davey, and the Labour chair of the work and pensions select committee, Stephen Timms, repeated calls for reform during a carer’s allowance BBC Newsnight special on Monday night.

Timms told the Guardian a “radical rethinking” of carer’s allowance was needed rather than piecemeal changes: “We need to have another look at the whole question of how we support carers in the modern world. The system we have now is old-fashioned.”

Ramzi Suleiman, policy manager at Carers Trust, said: “This is more than a simple communications issue and the fundamental issues of an over-complex [carer’s allowance] system, an incredibly low income threshold and high eligibility criteria all remain.”

The proposal to contact carer’s allowance claimants was contained in a DWP paper on tackling fraud in the benefit system, in which the welfare secretary, Mel Stride, vowed to prevent benefits falling “into the hands of criminals”. Less than 10% of carer’s allowance overpayments are fraudulent, according to the National Audit Office.

A DWP spokesperson said: “Following a review of the case, we have cancelled the overpayment and apologise [to the claimant] for any distress. We will refund all repayments already made.”

Referring to the plan to contact carers by text, they added: “We constantly review and look to improve our processes. This is why we are progressing an enhanced notification strategy as part of our ongoing commitment to customer engagement.

“This will help ensure customers fulfil their obligations to inform DWP when changes in their circumstances have occurred, building on existing communications.

“We are committed to fairness in the welfare system with safeguards in place for managing repayments while protecting the public purse.”