With plain text documents I always use Markdown formatting prior to ePub conversion. This requires spending a little time preparing the text document but gives good control of the generated ePub.
You could start with simply using ## at the start of chapter title lines, (these become HTML H2 tags which calibre's default Detect Chapters Xpath will pick up), and leave a single blank line between paragraphs.
Calibre has Markdown support which works very well: at conversion time, on the Text Input page, set: Paragraph style to "off" and Formatting style to "markdown".
Full details of Markdown can be found at
http://daringfireball.net/projects/markdown/
(You don't need to download Markdown, just understand the syntax.)