Atlantis Sound Inc., once among the largest retailers of stereo equipment on the East Coast, has closed 17 stores and filed for reorganization under Chapter 11 of the federal bankruptcy act.

The voluntary petition for reorganization, filed Oct. 12 in the U.S. Bankruptcy Court for the Eastern District of Virginia, said that Atlantis Sound was unable to pay nearly $1.6 million in debts. The company listed assets of $1.2 million.

"The recession is the simplest answer to what has happened to us," said Sy Evans, the company's controller. "It was just a lack of business."

Evans said the store closings were aimed at consolidating the company's operations in the hope that, "With some aggressive salesmanship, we could turn things around." He said "a lot hinges on what happens with our creditors--how, or whether, everyone works with us." Hearings on the petition are scheduled for next Monday.

In its heyday, back in 1975, Atlantis Sound had 32 outlets in six states along the East Coast. The chain shrank to 20 units and finally to three--in Rockville, Fairfax and Richmond.

Company President Karl K. Kanzler, who appeared in ads as "The Wizard of Atlantis," is traveling in Italy, according to a company employe, and could not be reached for comment yesterday. Kanzler owns about two-thirds of the company, and five other people own the rest.

The story of Atlantis Sound's money woes is told in terse detail in court records, which say the company owes $39,950.08 in federal taxes, $103,350.88 in various state taxes, and $2,559.10 in taxes to "other taxing authorities" such as license boards and $1.39 million in unsecured debts, among total debts of $1.56 million.

Atlantis' biggest creditors are stereo-equipment manufacturers, including Kenwood Electronics, Onkyo Electronics, U.S. Pioneer Electronic Corp., and Sony Corp. of America.

According to the records, thieves burglarized an Atlantis store in New York and took merchandise worth $60,000 last January. Another store, in Richmond, was hit twice, once for $20,000 worth of equipment on Feb. 6, and again for $35,000 in goods on Feb. 21. Insurance covered only about half the loss.