Based on what you're saying, you're trying to read your text file as if it was encoded in UTF-8, but it is not. Therefore, you're failing the initial step of reading the file, and nothing you do afterwards can recover from this failure. It is useless to speak about what to do after reading the file.
We cannot guess what is the real encoding of your initial file. You would need to put this file somewhere for us to download it. All you've shown so far is that it is not in UTF-8 (because if it were, you would not have the problem described.)
You've said that you're using this code:
new String(encoded, "UTF-8");
Because "encoded" contains the bytes of your file, and your file is not in UTF-8, this instruction is wrong. You need to replace "UTF-8" with whatever is the true encoding of your file.
For instance it might be:
new String(encoded, StandardCharsets.ISO_8859_1);
Another solution, would be to not touch your Java code and leave it as-is, but make it correct by making its assumption that the file is in UTF-8, correct. For that you'd use a text editor out there like Notepad++, tell it to convert the file to UTF-8, and save.