In a large saucepan, combine the potatoes, water, onion, garlic, salt and pepper; bring to a boil over medium heat. Reduce heat; cover and simmer for 15-20 minutes or until potatoes are tender. (Do not drain.) Mash potatoes in liquid (in the saucepan) until almost smooth. Add remaining ingredients EXCEPT bacon and shredded cheddar; cook and stir until the American cheese is melted. Optional: Top each bowl of soup with sprinkled bacon and shredded cheddar cheese.