PSP9-Problems with transperency while making a cutout

I'm having a problem with my PSP9. I was using the freehand tool to select part of an image in order to delete it. But once I deleted it, instead off the deleted part of the image becoming transparent, it fills with my background color. I've turned off my background color and tried switching the mode from Replace to Remove and nothing helps.



I have never had this problem before and any help would be appreciated.