You have half the floor out already, why not remove the rest and put down 3/4 CDX that will be stronger once nailed and glued to the joists.

Not only easier than piecemealing the floor together but stonger and less likely to squeak or shift.

Everything else looks OK as long as it is solid

I will replace the floor. I will lay down ¾" CDX where I removed the planks and then lay another ½" CDX or plywood to tie everything together.

However the issue is: What to do with that narrow portion of the floor that is under the damaged wallÂs bottom sill ? I want to remove that too and also put a new bottom plate under that wall (as you can see in the photo, the original bottom plate is very fragmented  I guess they did that to bring the pipes through).

"...why not remove the rest and put down 3/4 CDX that will be stronger once nailed and glued to the joists."

Only if you put it down on the diagonal like the original sub floor.

I would never replace decent solid wood sub floor with plywood.

What I had in mind was to:

A) temporarily shore up the wall by nailing a 2x8 to all the studs. Then,
B) cut the center studs at the very bottom, remove the bottom plate and the 1x6 damaged floor. Then
C) lay a new subfloor and then as a bottom plate instead of the usual 2x4 use two 2x6s, or even 2x8s on the side, imagine, like a low header sitting against the floor. That would allow me to put a metal strap to support the joists that fall over the gap (so basically hang the joists from this low header rather than shoring them up from the bottom).

The reason I want to shore up things is that something gave way there when things got wet. Perhaps the subfloor lost some mass and/or got compressed, perhaps the bottom plate got deformed, perhaps the "gap" sagged, or perhaps a combination of all the above.

IÂm sure that something gave way because on the other side of the wall where the two walls meet there is a vertical crack all along the corner, from floor to ceiling, showing a displacement of about ¼". Perhaps I can fix the crack and things may never move again, but fixing things after IÂm done remodeling the bathroom will be a PITA.

Arttofimpactwindows, thank you so much for the well thought out advice. I agree with you that there are complications to replace the bottom plate and floor underneath it. I already had some of the concerns you presented and you described some additional ones I had not quite thought about. So, now, there are perhaps a few extra factors to consider:

A) I forgot to mention that the room on the other side of the wall (kitchen) will be remodeled soon and kitchen cabinets will be added, so I do not mind replacing the wallboard on that side too. As a matter of fact, I may just have to do that anyway to fix the ¼" vertical floor to ceiling wallboard crack on the other side.

Now on the left side (see picture) where there is stucco, if any nails go from the stucco into the bottom plate, or bottom of studs, then I will indeed have to remove those. Perhaps I can add some angle brackets from the new header/bottom plate to the stucco to re-establish the same level of support.

B) the kitchen side of the wall will have to be opened up anyway because the top plate of the wall does not pass the screwdriver test. At least a section of that top plate is soft as a cork. But I was planning to be fix that from the other side, when the kitchen is remodeled.

C) My pictures do not show the complete foundation. So one cannot tell that the "gap" is only on the foundation wall, not the footing. The footing is contiguous and does not have any cracks. I think that perhaps implies that there was no foundation shifting (?) otherwise wouldnÂt a ¼"-3/8" settling manifest itself as a crack somewhere along the concrete footing?
So just by looking at the wood, it seems to me that it was the wood that gave way, that is, deformed, the bottom plate was fragmented so it could not distribute any load, the subfloor underneath warped/shrunk and the sill over the "gap" perhaps also gave way some. You see, right there where the walls meet, also falls part the weight from the roof valley (see my notes on the photo). The studs may have also shrunk a bit, as the wallboard crack on the other side is longer at the top than it is at the bottom.

D) Through a measurement (which I will not bother you describing) I estimated that about 500 lbs sit on the joist that falls over the gap. So, seems like the temporary 2x8, if preloaded with a floor jack (see notes on photo) should be able to take that load without deforming, right? That should also prevent the wall from re-settling onto the new members (as you described)?

In any case, here is a pictorial description of my plan of action. If I decide to go ahead and do it, I will post pictures as the work moves along (will not start for a few more days as I am now into re-plumbing work).

{{!gwi}}

PEX plumbing is done for now. So I removed the old galv pipes that were in the way and IÂm now ready to proceed with the structural workÂ

I installed the temporary header that will support the middle studs while I replace the bottom plate and install a permanent "header" low against the floor (as I had described above).

I know the header in the photo (2x10 attached with ¼"x4" lag screws) looks like it was put there to support a dump truck, while the actual load is only about 600 lbs, but since IÂve never done this before I do not mind the overkill.

Now ready for more demolitionÂ

{{!gwi}}

Still standingÂ
Saw did not catch when I cut the joists, so preloading must have worked.
{{!gwi}}

I would have used duplex head nails instead of screws, but it looks fine (if a lot of extra work).

Well this is last weekendÂs work.

{{!gwi}}

I sistered the two joists running in the center of the bathroom floor and double sistered the joist that runs under the bathroom/kitchen wall. I double sistered this one because, seems to me, this interior wall also carries a bit of weight from the roof (eg some of the ceiling joists terminate on this wall). I am not sure if having this wall bear some load is ok, was intentional, or was poor building practice on behalf of the original builder.
I used a combination of bolts screws and nails to hold the sisters tight next to the original joists (seems to me the nails work better when the screws and bolts hold the two joists tight against each other).

I shimmed where the joists rest on the sill to bring the floor closer to level. It is still not completely level in the center because the old joists have become a bit bowed. I reduced some of the bowing when I sistered the joists (pushed the center of the old joist up a bit with jack ~300 lbs before nailing the sister) but still not completely level. The slope is now 3/8" over 5 ft. IÂm thinking that may be level enough. Not sure if itÂs worth any extra effort to make the floor completely level (opinions welcome).

As you can see in the photos, I addressed the subsidence of the joist that fell over the foundation gap by adding extra blocking and, of course, by hanging the joist from the 2x10 header using straps and a heavy duty joist hanger (rated at about 2500lbs). The joist hanger is not visible in the photos because it is behind the blocks. It does seem like overkill but I would like to think that I will not have any more problems with this area. Bathtub, insulation, vapor barriers and possibly tile will go over these walls and floor so they will be difficult to access in the future.

I added a couple of extra studs where the exterior wall Ts into the bathroom wall (see comment on picture). Just in case the original studs had been weakened by the old roof leak.

When installing the 4x10 low header, I also tried to cut the studs 1/8" longer to get a tight fit and shimmed under those studs that still did not seem to have a tight fit. Then I finally removed the temporary support header. Nothing seems to have moved, no new cracks.