How can I update old paneling?

Brenda...Not sure what you mean about the lower half extending out. Can you send a picture? I painted my paneling after applying primer and prior to sanded or filled areas that might need attention.

Paint! Don't know what you mean by lower half extends out by 6"? Can you post a photo? See if this helps.

https://www.hgtv.com/design/decorating/design-101/painting-wood-paneling

https://www.thespruce.com/paint-wood-paneling-2213358

You will need to frame out the top portion with 6" studs, which are actually 51/2 inches deep and then add 1/2 inch drywall. While you are at it, insulate the top area with fiberglass and your basement will be even warmer. This should even out the wall for you.

Hi Brenda! I hope this information helps you. In one house we lived, it was all dark paneling which made the house so gloomy. I simply washed it down good and painted it a light color of gray and did some stenciling and it turned out so pretty. Here are some links to guide you. I would love to see your finished project! I know it will be lovely! Merry Christmas!

https://www.pinterest.com/explore/wood-paneling-update/

https://homeguides.sfgate.com/update-old-paneled-walls-33819.html

The lower half is below grade and extends out from the upper foundation wall creating a ledge. Paint is the easiest.

Make sure the paneling is clean and dry. Prime with a good stain blocking primer like Kilz. Then paint like painting regular walls. Acrilyc latex paint will work. If the paneling has grooves you can fill them with non shrink drywall patching compound. Just put on enough to fill the grooves. Let it dry overnight. Next day use a damp sponge to smooth the patch. Then prime and paint.

Priming and painting is the fastest and cheapest way to go, but you can wallpaper over panelling. If your paper is heavy enough you don't even have to fill the grooves but you could if you wanted to. You should still clean and prime before hanging paper.