Fix the text file. I'd use Notepad++ on Windows, TextWrangler on Mac and SciTE on Linux. And I'd save the following as macro so I have it next time.
- replace all double new lines (end of paragraph) with say '###'
- replace all single new lines with space
- replace all double space with space
- replace the '###' with new line
You can eyeball check by enabling word wrap in the the text editor, and widening narrowing the window size to ensure the text flows
The file should now be good for conversion
BR