I have a Level 12 Titan who prior to the release of 2.0 had all Legendary and Exotic Armors and weapons in the inventory and vault. I found those armors with my other 2 higher level characters. I know a level 12 cannot equip such armor and weapons, but nonetheless I assumed that character would get the bump up to level 30ish when the grandfathering occurred. I assumed there was no level limitations on the grandfathering clause, and I was disappointed to still be at level 12. I do not mind earning the higher levels, but I just thought that character would get a boost based on the armor and weapons possessed. Did I misunderstand?
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The system provided the maximum attainable level for your character, given all the armor you had in your inventory and vault. Because a level 12 cannot equip light bearing armor, the maximum level a level 12 character could attain, is level 12. Another way to look at it - What is the highest level a character could attain, if you equipped your best equip able gear one day before the patch? That is the level you were given at the patch.