When his lawyer convinced Sal Valente to file for bankruptcy under Chapter 11 in April of 1980 he had no sense that Bildisco, his New Jersey building-supply company, would be making history. He merely felt depressed.

"My lawyer's offices were on the 32d floor," Valente remembers, "and I kept saying to myself that if I jumped I could hit the hotel across the way.

"The first thing I had to do was go back and fire half the people in the company -- that was my first project. After that I had to go home and tell my wife what happened. It was not an easy day."

By cutting his 40-person staff in half, Valente hoped to save some $100,000 a year. But the firings would have much larger consequences. Bildisco was principally a union shop, and over the next four years, while Valente struggled to keep his business alive, the bankruptcy of this small New Jersey distributor became a national cause celebre, sparking a landmark United States Supreme Court case and one of the most intense Capitol Hill lobbying efforts of this election year.

It started with a lawsuit, when the National Labor Relations Board and the International Brotherhood of Teamsters took Bildisco to court. The dispute centered on two questions. First, when could a company break a contract -- as soon as it filed for Chapter 11, as Bildisco had, or only after approval by a federal bankruptcy judge? Second, how bad did business have to be before an employer could break a union agreement? Could it do so only as a last resort, as labor argued? Or was a labor contract only one of a debtor's many obligations, as Bildisco's attorney argued, an obligation to be balanced against what would be equitable and just for all the creditors?

The case reached the Supreme Court in the fall of 1983, and this past February, in a ruling The New York Times called "a sharp setback for organized labor," the justices found for Bildisco. Labor leaders were stunned. First, Wilson Foods Corp. had used Chapter 11 to cut their wages by 40%, according to the Times. Then Continental Airlines Corp. had used the bankruptcy court to the same end. Now, labor leaders thought, the court had made the right to break a union the law of the land. Haunted by the specter of Chapter 11 as a strategic cost-cutting tool, they put overturning the Bildisco decision at the top of their 1984 congressional lobbying list.

Back in New Jersey, meanwhile, Sal Valente had his own battles to fight; he remembers the Bildisco bankruptcy as "the most terrible time of my life."

Bildisco had been sinking under the weight of $800,000 in bad debt left from the construction slump of 1974-75, and the downturn of 1980 pushed it to the edge. By April, Valente was 90 days delinquent on most of his bills, including wage and pension contributions to his Teamsters.

"People would have you think that we sat home and plotted to go into Chapter 11, but there was no grandiose plan. We were insolvent, and it was the only thing we could think of. When you have management that's removed from ownership, then Chapter 11 can be a business maneuver. But in any small business, it's personal -- and it's agonizing.

"Over and over people told me to throw everything in, but I do believe you have to look at yourself in the mirror each morning. The best way to try to undo what happened was to make the business succeed again. That's what drove me.

"It took about two and a half years for the business to stabilize. When your customers know you're in Chapter 11, they are reluctant to buy from you; there is a tremendous drop in sales. And receivables become a problem, because your customers figure that since you might not make it, they'll wait and see before they pay.

"It gets very complicated to do business; you can no longer make your own decisions. Everything I did was just reacting to stimuli. We could no longer figure on do ing $500,000 a month [in sales]; $200,000 was more realistic. So the company had to be restructured. There were certain product lines that were unprofitable, so we had to drop them; we could no longer afford to try to be an innovator. And all our costs had to be looked at. We cut staff, and I took a 50% pay cut."

Marginal stability was not enough, however; Valente had taken Bildisco into bankruptcy in the hope that he could one day bring his company back out. He met with four or five different potential investors, and considered becoming a retail business rather than a distributor. Then he began negotiating with Acme Steel, a New York City-area steel producer and Bildisco's biggest creditor. Fueled with $400,000 in new capital from Acme and other sources, Valente brought Bildisco out of Chapter 11 on April 14, 1983, two years to the day after he had first filed.

Bildisco Door Manufacturing Inc. is a very different company today from the sinking distributorship of four years ago. It is now a corporation rather than a partnership, and a manufacturer of specialty hollow-metal and wood doors rather than a general building supply-distributor. The company now employs 12 workers, all nonunion, compared with the 50 or so unionized employees it had before the bankruptcy. All legal disputes have been settled, and Valente is largely out of debt: He paid off 100% to all his secured creditors and 12 1/2 cents on the dollar to the unsesecured. Today the only large debt remaining is his legal fees, and Valente looks forward to making a profit "in 5 or 10 years."

The larger battle Bildisco had ignited stretched on until late June of this year. In a late-night negotiating session, a congressional conference committee reached its compromise on the bankruptcy bill. The "balance of the equities" standard established by the Supreme Court as grounds for a company to void a contract could stay but a company couldn't break a contract before it got the approval of a bankruptcy judge. "Victory with a small 'v'," Ernest Dubester of the AFL-CIO called it.

For Sal Valente, however, the scars remain. "People don't understand what it means to go through Chapter 11," he says. "It means you fail as a person when your company fails. No matter how hard you've worked, everything that you've ever done lust disappears.

"I'm not out of shock yet. This has been a terrible experience, and that's not something you come out of easily. But if you pulled a D&B on Bildisco today, you'd see a nice report, and I'm proud of that."

Research assistance for this article was provided by Julia Homer.