My wife co-signed for her nephew to get a car. Now she has had a stroke and is receiving disability income. The car was repossessed. Can the loan company sue my wife?

It's possible.  What happens, after a car is repossessed, is that it gets sold, usually at a wholesale auction for a fairly low price, compared to its "retail" value, but that's mostly considered "commercially reasonable," and there's nothing that can be done about that.  If the money from the sale doesn't cover the loan balance and repossession expenses, then the lender can sue for the difference, and if that happens, both your wife and her nephew would be sued.