diff --git a/erpnext/accounts/doctype/dunning/dunning.py b/erpnext/accounts/doctype/dunning/dunning.py
index 48f12897045..379c7e96e66 100644
--- a/erpnext/accounts/doctype/dunning/dunning.py
+++ b/erpnext/accounts/doctype/dunning/dunning.py
@@ -11,6 +11,7 @@
 
 		-> Resolves dunning automatically
 """
+
 import json
 
 import frappe
@@ -202,6 +203,46 @@ def resolve_dunning(doc, state):
 					dunning.save()
 
 
+def resolve_dunning_for_credit_note(doc, state):
+	"""
+	Check if dunning should be resolved when a credit note is issued against a Sales Invoice.
+	Only process if update_outstanding_for_self is False (credit note is being applied against the original invoice).
+	"""
+	if not doc.is_return or doc.get("update_outstanding_for_self"):
+		return
+
+	if not doc.get("return_against"):
+		return
+
+	original_invoice = doc.return_against
+	if doc.docstatus == 1:
+		state = "Unresolved"
+	elif doc.docstatus == 2:
+		state = "Resolved"
+	else:
+		return
+
+	dunnings = get_linked_dunnings_as_per_state(original_invoice, state)
+
+	for dunning in dunnings:
+		resolve = True
+		dunning = frappe.get_doc("Dunning", dunning.get("name"))
+		for overdue_payment in dunning.overdue_payments:
+			outstanding_inv = frappe.get_value(
+				"Sales Invoice", overdue_payment.sales_invoice, "outstanding_amount"
+			)
+			outstanding_ps = frappe.get_value(
+				"Payment Schedule", overdue_payment.payment_schedule, "outstanding"
+			)
+			resolve = resolve and (False if (outstanding_ps > 0 and outstanding_inv > 0) else True)
+
+		new_status = "Resolved" if (resolve and doc.docstatus == 1) else "Unresolved"
+
+		if dunning.status != new_status:
+			dunning.status = new_status
+			dunning.save()
+
+
 def get_linked_dunnings_as_per_state(sales_invoice, state):
 	dunning = frappe.qb.DocType("Dunning")
 	overdue_payment = frappe.qb.DocType("Overdue Payment")
diff --git a/erpnext/accounts/doctype/dunning/test_dunning.py b/erpnext/accounts/doctype/dunning/test_dunning.py
index 9c0885a5bd0..c8b5a631864 100644
--- a/erpnext/accounts/doctype/dunning/test_dunning.py
+++ b/erpnext/accounts/doctype/dunning/test_dunning.py
@@ -139,6 +139,64 @@ class TestDunning(IntegrationTestCase):
 		self.assertEqual(sales_invoice.status, "Overdue")
 		self.assertEqual(dunning.status, "Unresolved")
 
+	def test_dunning_resolution_with_credit_note(self):
+		"""
+		Test that dunning is resolved when a credit note is issued against the original invoice.
+		"""
+		sales_invoice = create_sales_invoice_against_cost_center(
+			posting_date=add_days(today(), -10), qty=1, rate=100
+		)
+		dunning = create_dunning_from_sales_invoice(sales_invoice.name)
+		dunning.submit()
+
+		self.assertEqual(dunning.status, "Unresolved")
+
+		credit_note = frappe.copy_doc(sales_invoice)
+		credit_note.is_return = 1
+		credit_note.return_against = sales_invoice.name
+		credit_note.update_outstanding_for_self = 0
+
+		for item in credit_note.items:
+			item.qty = -item.qty
+
+		credit_note.save()
+		credit_note.submit()
+
+		dunning.reload()
+		self.assertEqual(dunning.status, "Resolved")
+
+		credit_note.cancel()
+		dunning.reload()
+		self.assertEqual(dunning.status, "Unresolved")
+
+	def test_dunning_not_affected_by_standalone_credit_note(self):
+		"""
+		Test that dunning is NOT resolved when a credit note has update_outstanding_for_self checked.
+		"""
+		sales_invoice = create_sales_invoice_against_cost_center(
+			posting_date=add_days(today(), -10), qty=1, rate=100
+		)
+		dunning = create_dunning_from_sales_invoice(sales_invoice.name)
+		dunning.submit()
+
+		self.assertEqual(dunning.status, "Unresolved")
+
+		credit_note = frappe.copy_doc(sales_invoice)
+		credit_note.is_return = 1
+		credit_note.return_against = sales_invoice.name
+		credit_note.update_outstanding_for_self = 1
+
+		for item in credit_note.items:
+			item.qty = -item.qty
+
+		credit_note.save()
+
+		credit_note = frappe.get_doc("Sales Invoice", credit_note.name)
+		credit_note.submit()
+
+		dunning.reload()
+		self.assertEqual(dunning.status, "Unresolved")
+
 
 def create_dunning(overdue_days, dunning_type_name=None):
 	posting_date = add_days(today(), -1 * overdue_days)
diff --git a/erpnext/hooks.py b/erpnext/hooks.py
index 806955d6e7c..5006f143377 100644
--- a/erpnext/hooks.py
+++ b/erpnext/hooks.py
@@ -359,8 +359,12 @@ doc_events = {
 		"on_submit": [
 			"erpnext.regional.create_transaction_log",
 			"erpnext.regional.italy.utils.sales_invoice_on_submit",
+			"erpnext.accounts.doctype.dunning.dunning.resolve_dunning_for_credit_note",
+		],
+		"on_cancel": [
+			"erpnext.regional.italy.utils.sales_invoice_on_cancel",
+			"erpnext.accounts.doctype.dunning.dunning.resolve_dunning_for_credit_note",
 		],
-		"on_cancel": ["erpnext.regional.italy.utils.sales_invoice_on_cancel"],
 		"on_trash": "erpnext.regional.check_deletion_permission",
 	},
 	"Purchase Invoice": {